35 Pages Posted: 11 Nov 2008 Last revised: 15 May 2009
Date Written: May 30, 2006
This report presents different hybrid models and their application to the pricing of exotic products. A Market Model combining a risk-free term structure and a defaultable one for one underlying is first developped, with the application to the pricing of some exotic products, especially designed for the hedging needs of pension funds (1). Recalling the basis of the underlying HJM model (2) will then give us the possibility to extend some results to the modelling of the credit migration process (3), and to a multi-name framework (4). Along the lines, some links with Equity diffusions are covered.
Keywords: Exotics, Hybrids, HJM, BGM, Markov Chains, transition matrix, Longstaff Schwarz, probability measure, forward neutral, survival neutral
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By Ahsan Amin