Constructing Random Times with Given Survival Processes and Applications to Valuation of Credit Derivatives

Pavel V. Gapeev (), Monique Jeanblanc (), Libo Li () and Marek Rutkowski ()
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Pavel V. Gapeev: London School of Economics, Department of Mathematics
Monique Jeanblanc: Université d’Évry Val d’Essonne, Département de Mathématiques
Libo Li: University of Sydney, School of Mathematics and Statistics
Marek Rutkowski: University of Sydney, School of Mathematics and Statistics

A chapter in Contemporary Quantitative Finance, 2010, pp 255-280 from Springer

Abstract: Abstract We provide an explicit construction of a random time when the associated Azéma semimartingale (also known as the survival process) is given in advance. Our approach hinges on the use of a variant of Girsanov’s theorem combined with a judicious choice of the Radon-Nikodým density process. The proposed solution is also partially motivated by the classic example arising in the filtering theory.

Keywords: Probability Measure; Random Time; Credit Default Swap; Local Martingale; Credit Derivative (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-642-03479-4_14

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DOI: 10.1007/978-3-642-03479-4_14

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