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DEFAULTABLE OPTIONS IN A MARKOVIAN INTENSITY MODEL OF CREDIT RISK
Author(s) -
Bielecki Tomasz R.,
Crépey Stéphane,
Jeanblanc Monique,
Rutkowski Marek
Publication year - 2008
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/j.1467-9965.2008.00345.x
Subject(s) - convertible bond , credit risk , valuation (finance) , econometrics , markov process , computer science , valuation of options , construct (python library) , economics , credit derivative , actuarial science , mathematical economics , bond , mathematics , finance , statistics , programming language
This paper is a follow‐up to “Valuation and Hedging of Defaultable Game Options in a Hazard Process Model” by the same authors. In the present paper we give user friendly assumptions ensuring that the general conditions in the previous paper are satisfied. We also give a systematic procedure to construct suitable intensity models of credit risk, and, in the Markovian case, we provide a variational inequality approach to the pre‐default pricing problem. We finally illustrate our results on a study of defaultable convertible bonds.