We consider modeling errors in the hedging of a portfolio composed from BBB-rated bonds. By doing this, we open a new perspective to the debate on the relationship between corporate bonds and CDS spreads. We find that in ordinary times the added value of indexlinked credit derivatives is very...

The financial crisis has raised concerns throughout the industry on the possibility that hedging credit valuation adjustment (CVA) might become increasingly difficult should the long-standing correlation between singlename and index CDS products break down. So, we provide an estimation of the...

This paper presents a joint analysis of the term structure of credit default swap (CDS) spreads and the implied volatility surface for European countries during 2007-2012, a sample period covering both the Global Financial Crisis and the European debt crisis. We analyze to which extent...

On October 5, 2001, when credit spreads were widening, the Chicago Mercantile Exchange CME de-listed the full menu of emerging market Brady bond futures contracts. This is intriguing because at a time when interest in hedging and speculating in emerging market sovereign credit risk should be at...

Pricing and hedging structured credit products poses major challenges to financial institutions. This has become very clear during the recent credit crisis. This paper puts several valuation approaches through a crucial test: How did these models perform in one of the worst periods of economic...

Modeling default dependence for measuring and managing portfolio credit risk is one of the most challenging problems in modern finance. The standard industry model is a multi-variate Gaussian latent-variable model, where the latent variables are associated with log asset value processes. These...

We investigate the pricing of basket credit derivatives and their hedging with single name credit default swaps (CDS) based on a model for the joint dynamics of the fair CDS spreads. In the situation of the market flow of information being a pure jump filtration, we present an extremely...

We investigate the pricing of basket credit derivatives and their hedging with single name credit default swaps (CDS) based on a model for the joint dynamics of the fair CDS spreads. In the situation of the market flow of information being a pure jump filtration, we present an extremely...

We develop a new approach to pricing and hedging contingent claims in incomplete markets framework the no-arbitrage arguments that have been developed in complete markets leads us to defining the concept we are able to extend the no-arbitrage ideo to a world of incomplete markets in such a way...