Pricing Defaultable Securities under Actual Probability Measure

Feng Jianfen (), Chen Dianfa () and Yu Mei ()
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Feng Jianfen: School of Banking and Economics, UIBE, Beijing100029, China
Chen Dianfa: School of Economics, Nankai University, Tianjin300071, China
Yu Mei: School of Banking and Economics, UIBE, Beijing100029, China

Journal of Systems Science and Information, 2014, vol. 2, issue 4, 313-334

Abstract: In this paper, a new approach is developed to estimate the value of defaultable securities under the actual probability measure. This model gives the price framework by means of the method of backward stochastic differential equation. Such a method solves some problems in most of existing literatures with respect to pricing the credit risk and relaxes certain market limitations. We provide the price of defaultable securities in discrete time and in continuous time respectively, which is favorable to practice to manage real credit risk for finance institutes.

Keywords: credit risk; market price of risk; backward stochastic differential equation; risk-adjusted discount value (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jossai:v:2:y:2014:i:4:p:313-334:n:3

DOI: 10.1515/JSSI-2014-0313

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