Ammann Pricing Derivative Credit Risk

Erscheinungsjahr 2013
ISBN: 978-3-662-22330-7
Verlag: Springer
Format: PDF
Kopierschutz: 1 - PDF Watermark

E-Book, Englisch, 232 Seiten, Web PDF

Reihe: Lecture Notes in Economics and Mathematical Systems

Credit risk is an important consideration in most financial transactions. As for any other risk, the risk taker requires compensation for the undiversifiable part of the risk taken. In bond markets, for example, riskier issues generally promise investors a higher yield. The same principle also applies to financial derivatives. Otherwise identical derivative securities will likely have differ ent prices if the counterparties are not of the same credit quality. Although this argument seems intuitively convincing, widely used pricing models for financial derivatives do not incorporate credit risk effects. This research monograph analyzes the effect of credit risk on financial derivatives prices. Credit risk can affect derivatives prices in a variety of ways. First, financial derivatives can be subject to counterparty default risk. Second, a derivative can be written on a security which is subject to credit risk, such as a corporate bond. Third, the credit risk itself can be the un derlying of a derivative instrument. The text focuses on valuation models which take into account counterparty risk but also addresses the other two valuation problems.

Zielgruppe

Research

Autoren/Hrsg.

Ammann, Manuel

Inhaltsverzeichnis

1. Introduction.- 2. Contingent Claim Valuation.- 3. Review of Credit Risk Models.- 4. Firm Value Model.- 5. Hybrid Model.- 6. Credit Derivatives.- 7. Conclusion.- A. Proofs.- A.1 Proof of Proposition 4.2.1.- A.2 Proof of Proposition 4.3.1.- A.3 Proof of Proposition 4.4.1.- A.4 Proof of Proposition 4.5.1.- A.5 Proof of Proposition 6.3.1.- B. Stochastic Utilities.- B.1 Probabilistic Foundations.- B.2 Process Classes.- B.3 Martingales.- B.4 Brownian Motion.- B.5 Stochastic Integration.- B.6 Change of Measure.- References.- List of Figures.- List of Tables.