Defaultable Options in a Markovian Intensity Model of Credit Risk

by Tom Bielecki of Illinois Institute of Technology,
Stéphane Crépey of the Université d'Évry,
Monique Jeanblanc of the Université d'Évry,and
Marek Rutkowski of the University of New South Wales & Warsaw University of Technology

December 23, 2007

Abstract: This paper is a follow-up to "Valuation and Hedging of Defaultable Game Options in a Hazard Process Model" by the same authors. In the present paper we give user friendly assumptions ensuring that the general conditions in the previous paper are satisfied. We also give a systematic procedure to construct suitable intensity models of credit risk, and, in the Markovian case, we provide a variational inequality approach to the pre-default pricing problem.

Keywords: defaultable options, hedging, game options, American options, variational inequality, BSDE.

Published in: Mathematical Finance, Vol. 18, No. 4, (October 2008), pp. 493-518.

Books Referenced in this Paper:  (what is this?)

Download paper (371K PDF) 23 pages

[Home] [Credit Modeling Papers]

[ Home ] [ Up ]

Please contact me with problems or suggestions.
Copyright © 2000-2009 DefaultRisk.com
Last modified: July 18, 2009