Local risk minimization for defaultable markets

Biagini, Francesca and Cretarola, Alessandra (2009): Local risk minimization for defaultable markets. In: Mathematical Finance, Vol. 19, No. 4: pp. 669-689

Abstract

We study the local risk minimization approach for defaultable markets in a general setting where the asset price dynamics and the default time may influence each other. We find the Föllmer-Schweizer decomposition in this general setting and compute it explicitly in two particular cases, when default time depends on the risky asset's behavior and when only a dependence of discounted asset price on default time is occurring.

• Item Type: Journal article
• Faculties: Mathematics, Computer Science and Statistics > Mathematics > Workgroup Financial Mathematics
• Subjects: 500 Science > 510 Mathematics
• ISSN: 0960-1627
• Language: English