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LOCAL RISK MINIMIZATION FOR DEFAULTABLE MARKETS
Author(s) -
Biagini Francesca,
Cretarola Alessandra
Publication year - 2009
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.1467-9965.2009.00384.x
Subject(s) - asset (computer security) , econometrics , economics , minification , default , computer science , mathematics , finance , mathematical optimization , computer security
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.