Local Risk Minimization for Defaultable Markets

21 Pages Posted: 21 Oct 2009

See all articles by Francesca Biagini

Francesca Biagini

University of Bologna - Department of Mathematics

Alessandra Cretarola

affiliation not provided to SSRN

Date Written: 2008-02

Abstract

We study the local risk minimization approach for defaultable markets in a general setting where the asset price dynamics and the default time may influence each other. We find the Föllmer-Schweizer decomposition in this general setting and compute it explicitly in two particular cases, when default time depends on the risky asset's behavior and when only a dependence of discounted asset price on default time is occurring.

Suggested Citation

Biagini, Francesca and Cretarola, Alessandra, Local Risk Minimization for Defaultable Markets (2008-02). Mathematical Finance, Vol. 19, Issue 4, pp. 669-689, October 2009, Available at SSRN: https://ssrn.com/abstract=1491826 or http://dx.doi.org/10.1111/j.1467-9965.2009.00384.x

Francesca Biagini (Contact Author)

University of Bologna - Department of Mathematics ( email )

Piazzadi Porta San Donato, 5
Bologna, 40126
Italy

Alessandra Cretarola

affiliation not provided to SSRN

No Address Available

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