Defaultable Game Options in a Hazard Process Model

by Tomasz R. Bielecki of the Illinois Institute of Technology,
Stéphane Crépey of the Université d'Évry Val d'Essonne
Monique Jeanblanc of the Université d'Évry Val d'Essonne & Europlace Institute of Finance, and
Marek Rutkowski of the University of New South Wales & Warsaw University of Technology

July 2009

Abstract: The valuation and hedging of defaultable game options is studied in a hazard process model of credit risk. A convenient pricing formula with respect to a reference filteration is derived. A connection of arbitrage prices with a suitable notion of hedging is obtained. The main result shows that the arbitrage prices are the minimal superhedging prices with sigma martingale cost under a risk neutral measure.

Published in: Journal of Applied Mathematics and Stochastic Analysis, Vol. 2009, Article ID 695798, (July 2009), 33 pages.

Previously titled: Valuation and Hedging of Defaultable Game Options in a Hazard Process Model

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