- Previous Article
- Next Article
- Table of Contents
Applied Mathematics and Optimization, Vol.56, No.3, 425-443, 2007
Quadratic hedging methods for defaultable claims
We apply the local risk-minimization approach to defaultable claims and we compare it with intensity-based evaluation formulas and the mean-variance hedging. We solve analytically the problem of finding respectively the hedging strategy and the associated portfolio for the three methods in the case of a default put option with random recovery at maturity.
Keywords:defaultable markets;intensity-based approach;local risk-minimization;minimal martingale measure;mean-variance hedging