Quantile Hedging for Defaultable Claims

Yumiharu Nakano
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Yumiharu Nakano: Graduate School of Innovation Management, Tokyo Institute of Technology, 2-12-1 Ookayama 152-8552, Tokyo, Japan and PRESTO, Japan Science and Technology Agency, 4-1-8 Honcho Kawaguchi, Saitama 332-0012, Japan

Chapter 9 in Recent Advances in Financial Engineering 2009, 2010, pp 219-230 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWe study the quantile hedging problem for defaultable claims in incomplete markets modeled by Itô processes, in the case where the portfolio processes are adapted to the full filtration. Using the convex duality method as in Cvitanić and Karatzas (Bernoulli, 7 (2001), 79–97) and a good structure of the class of the equivalent martingale measures, we derive a closed form solution for the problem.

Keywords: Financial Engineering; Mathematical Finance; Credit Risk; Real Options; Optimal Investment; Heterogeneous Beliefs (search for similar items in EconPapers)
Date: 2010
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