An Alternative Forward Measure Approach to Hedging Defaultable Contingent Claims
Abstract
In this paper, we present a \emph{forward measure approach} to hedge defaultable contingent claims under stochastic interest rates. The relation of hedging strategies between the risk neutral measure and forward measure is deduced. Under the invariance martingale property and reduced-form model for default risk, to hedge a defaultable contingent claim depending on the forward price, one has to invest the same amount of this contingent claim value in the defaultable zero-coupon, and use defaultfree zero-coupon bond to hedge interest risk which extends the result of Blanchet-Scalliet, Jeanblane\cite{BSJ}.
Published
2012-12-12
How to Cite
Qiao, G., & Li, X. (2012). An Alternative Forward Measure Approach to Hedging Defaultable Contingent Claims. European Journal of Mathematical Sciences, 1(1), 120-130. Retrieved from https://ejmathsci.org/index.php/ejmathsci/article/view/67
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