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Hazard rate for credit risk and hedging defaultable contingent claims

Author

Listed:
  • Christophette Blanchet-Scalliet
  • Monique Jeanblanc

Abstract

We provide a concise exposition of theoretical results that appear in modeling default time as a random time, we study in details the invariance martingale property and we establish a representation theorem which leads, in a complete market setting, to the hedging portfolio of a vulnerable claim. Our main result is that, to hedge a defaultable claim one has to invest the value of this contingent claim in the defaultable zero-coupon. Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Christophette Blanchet-Scalliet & Monique Jeanblanc, 2004. "Hazard rate for credit risk and hedging defaultable contingent claims," Finance and Stochastics, Springer, vol. 8(1), pages 145-159, January.
    • Handle: RePEc:spr:finsto:v:8:y:2004:i:1:p:145-159
    DOI: 10.1007/s00780-003-0108-1
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