Quotation Frey, Rüdiger, Schmidt, Thorsten. 2012. Pricing and Hedging of Credit Derivatives via the Innovations Approach to Nonlinear Filtering. Finance and Stochastics 16 (1): 105-133.


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Abstract

In this paper, we propose a new, information-based approach for modelling the dynamic evolution of a portfolio of credit risky securities. In our setup, market prices of traded credit derivatives are given by the solution of a nonlinear filtering problem. The innovations approach to nonlinear filtering is used to solve this problem and to derive the dynamics of market prices. Moreover, the practical application of the model is discussed: we analyse calibration, the pricing of exotic credit derivatives and the computation of risk-minimizing hedging strategies. The paper closes with a few numerical case studies.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Journal article
Journal Finance and Stochastics
Citation Index SSCI
WU Journalrating 2009 A
WU-Journal-Rating new FIN-A, STRAT-B, VW-B, WH-B
Language English
Title Pricing and Hedging of Credit Derivatives via the Innovations Approach to Nonlinear Filtering
Volume 16
Number 1
Year 2012
Page from 105
Page to 133
URL http://www.springerlink.com/content/22q0u18716082517/fulltext.pdf

Associations

People
Frey, Rüdiger (Details)
External
Schmidt, Thorsten
Organization
Institute for Statistics and Mathematics IN (Details)
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