Static Hedging Of Defaultable Contingent Claims: A Simple Hedging Scheme Across Equity And Credit Markets
This paper proposes a simple scheme for static hedging of defaultable contingent claims. It generalizes the techniques developed by Carr and Chou (1997), Carr and Madan (1998), and Takahashi and Yamazaki (2009a) to credit-equity models. Our scheme provides a hedging strategy across credit and equity markets, where suitable defaultable contingent claims are accurately replicated by a feasible number of plain vanilla equity options. Another point is that shorter maturity options are available to hedge longer maturity defaultable contingent claims. Through numerical examples, it is shown that the scheme is applicable to both structural and intensity-based models.
Volume (Year): 14 (2011)
Issue (Month): 02 ()
|Contact details of provider:|| Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml|
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:14:y:2011:i:02:p:239-264. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim)
If references are entirely missing, you can add them using this form.