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 Follmer-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.
Local risk minimization for defaultable markets
Cretarola A.
2009-01-01
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 Follmer-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.File in questo prodotto:
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