Université d'Évry - Departement de Mathematiques; ESSEC Business School - Finance Department; HSBC (Global Markets)
Dresdner Kleinwort Wasserstein; National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE)
Université Paris Est - Université Paris Est-Creteil
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.
Number of Pages in PDF File: 35
Keywords: Exotics, Hybrids, HJM, BGM, Markov Chains, transition matrix, Longstaff Schwarz, probability measure, forward neutral, survival neutral
Date posted: November 11, 2008 ; Last revised: May 15, 2009