Defaultable Options in a Markovian Intensity Model of Credit Risk

26 Pages Posted: 19 Sep 2008

See all articles by Tomasz R. Bielecki

Tomasz R. Bielecki

Illinois Institute of Technology

Stéphane Crépey

Université d'Évry - Equipe d'Analyse et Probabilites

Monique Jeanblanc

Université d'Évry - Departement de Mathematiques

Marek Rutkowski

Politechnika Warszawska

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. We finally illustrate our results on a study of defaultable convertible bonds.

Suggested Citation

Bielecki, Tomasz R. and Crépey, Stéphane and Jeanblanc, Monique and Rutkowski, Marek, Defaultable Options in a Markovian Intensity Model of Credit Risk. Mathematical Finance, Vol. 18, Issue 4, pp. 493-518, October 2008, Available at SSRN: https://ssrn.com/abstract=1270340 or http://dx.doi.org/10.1111/j.1467-9965.2008.00345.x

Tomasz R. Bielecki (Contact Author)

Illinois Institute of Technology ( email )

Department of Applied Mathematics
10 W. 32nd Street
Chicago, IL 60616
United States
312 567 3185 (Phone)
312 567 3135 (Fax)

Stéphane Crépey

Université d'Évry - Equipe d'Analyse et Probabilites ( email )

Boulevard des Coquibus
F-91025 Evry Cedex
France

Monique Jeanblanc

Université d'Évry - Departement de Mathematiques ( email )

rue du pere Jarlan
F-91025 Evry Cedex
France
33 (0) 1 69 47 02 05/ 02 01 (Phone)
33 (0) 1 69 47 02 18 (Fax)

Marek Rutkowski

Politechnika Warszawska ( email )

Pl. Politechniki 1
Institute of Mathematics
00-661 Warsaw
Poland
+48-22 660 7055 (Phone)
+48-22 625 7460 (Fax)

HOME PAGE: http://www.mini.pw.edu.pl/pol/pracownicy/m_rutkowski.htm

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