A unified approach to pricing and risk management of equity and credit risk

Fontana, Claudio und Montes, Juan Miguel (2014): A unified approach to pricing and risk management of equity and credit risk. In: Journal of Computational and Applied Mathematics, Bd. 259, Nr. Part B: S. 350-361

Abstract

We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions between the defaultable stock price, its stochastic volatility and the default intensity, while maintaining full analytical tractability. We characterize all risk-neutral measures which preserve the affine structure of the model and show that risk management as well as pricing problems can be dealt with efficiently by shifting to suitable survival measures. As an example, we consider a jump- to-default extension of the Heston stochastic volatility model.

• Dokumententyp: Zeitschriftenartikel
• Publikationsform: Submitted Version
• Keywords: Default risk; Affine processes; Stochastic volatility; Market price of risk; Change of measure; Jump-to-default
• Fakultät: Mathematik, Informatik und Statistik > Mathematik > Finanz- und Versicherungsmathematik
• Themengebiete: 300 Sozialwissenschaften > 310 Statistiken ; 300 Sozialwissenschaften > 330 Wirtschaft ; 500 Naturwissenschaften und Mathematik > 510 Mathematik
• Sprache: Englisch

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