English, Article edition: PRICING AND HEDGING IN A DYNAMIC CREDIT MODEL YOUSSEF ELOUERKHAOUI

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Bookmark: http://trove.nla.gov.au/version/83234
Physical Description
  • article
Language
  • English

Edition details

Title
  • PRICING AND HEDGING IN A DYNAMIC CREDIT MODEL
Author
  • YOUSSEF ELOUERKHAOUI
Physical Description
  • article
Notes
  • In this paper, we present a methodology for pricing and hedging portfolio credit derivatives in a dynamic credit model. Starting with a single-name MarshallâOlkin framework, we build a dynamic top-down version of the model, which is tractable and preserves the intuition of the original setting. In the first part of the paper, we derive analytically the Fourier transform of the loss variable and we study the skew dynamics implied by the model. In the second part, we develop a theory for dynamic hedging of portfolio credit derivatives. Since the market is incomplete, due to the residual correlation risk, perfect replication cannot be achieved. To find the hedging strategies, we use a quadratic risk minimization criterion.
  • MarshallâOlkin model, common poisson shocks, dynamic copula, asymptotic series expansion, top-down approach, forward skew, marked point process, market incompleteness, dynamic hedging, quadratic risk minimization, FöllmerâSondermann approach
  • RePEc:wsi:ijtafx:v:10:y:2007:i:04:p:703-731
Language
  • English
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