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In Rememberance: World Trade Center (WTC)

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Hedging of Credit Derivatives in Models with Totally Unexpected Default

by Tomasz R. Bielecki of the Illinois Institute of Technology,
Monique Jeanblanc of the UniversitÚ d'╔vry Val d'Essonne, and
Marek Rutkowski of Warsaw University of Technology

October 7, 2005

Introduction: This paper presents some methods to hedge defaultable derivatives under the assumption that there exist tradeable assets with dynamics allowing for elimination of default risk of derivative securities. We investigate hedging strategies in alternative frameworks with different degrees of generality, an abstract semimartingale framework and a more specific Markovian set-up, and we use two alternative approaches.

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