Hybrid Pricing

35 Pages Posted: 11 Nov 2008 Last revised: 15 May 2009

Sebastien Roland

Université d'Évry - Departement de Mathematiques; ESSEC Business School - Finance Department; HSBC (Global Markets)

Lionel Viet

Dresdner Kleinwort Wasserstein; National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE)

Marian Ciuca

Pricing Partners

Eric Benhamou

Université Paris Est - Université Paris Est-Creteil

Date Written: May 30, 2006

Abstract

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

Suggested Citation

Roland, Sebastien and Viet, Lionel and Ciuca, Marian and Benhamou, Eric, Hybrid Pricing (May 30, 2006). Available at SSRN: https://ssrn.com/abstract=1298894 or http://dx.doi.org/10.2139/ssrn.1298894

Sebastien Roland

Université d'Évry - Departement de Mathematiques ( email )

F-91025 Evry Cedex
France

ESSEC Business School - Finance Department ( email )

Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021
France

HSBC (Global Markets) ( email )

Fourth Floor, 8 Canada Square
Canary Wharf, London, E14 5HQ
United Kingdom

Lionel Viet (Contact Author)

Dresdner Kleinwort Wasserstein ( email )

London EC3P 3DB
United Kingdom

National Institute of Statistics and Economic Studies (INSEE) - National School for Statistical and Economic Administration (ENSAE) ( email )

92245 Malakoff Cedex
France

Marian Ciuca

Pricing Partners ( email )

Paris Cybervillage
204 Rue de crimée
Paris, 75019
France

HOME PAGE: http://www.pricingpartners.com

Eric Benhamou

Université Paris Est - Université Paris Est-Creteil ( email )

61 avenue du Général de Gaulle
Créteil, 940000
France

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