Mathematical Preliminaries

Anna Schlösser ()
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Anna Schlösser: Hedging and Derivatives Strategies

Chapter Chapter 3 in Pricing and Risk Management of Synthetic CDOs, 2011, pp 67-92 from Springer

Abstract: Abstract In this chapter the mathematical preliminaries relevant for this thesis are provided. First of all, we present the basic definitions and the central facts of the stochastic calculus. In the second section, one of the most popular reduced-form single-name credit risk models, namely the default intensity model is described. This model is going to be used in the further chapters for CDS and CDO modeling. We will not discuss the variety of the single-name credit risk models in this thesis, since we concentrate on the portfolio credit risk and correlation modeling. In the third section, the central facts and estimation algorithms of the Hidden Markov Models theory are covered. Finally, the structure of the rating migration matrices and computation of the migration probabilities is discussed in the fourth section.

Keywords: Hide Markov Model; Risk Measure; Credit Risk; Portfolio Selection; Credit Default Swap (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-642-15609-0_3

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DOI: 10.1007/978-3-642-15609-0_3

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