In this paper we present a new approach to incorporate default dependency in intensity-based default risk models. The model uses an arbitrary default dependency structure which is specified by the Copula of the times of default, this is combined with individual intensity-based models for the...

In this paper a new credit risk model for credit derivatives is presented. The model is based upon the ‘Libor market’ modelling framework for default-free interest rates. We model effective default-free forward rates and effective forward credit spreads as lognormal diffusion processes, and...

This paper gives a simple introduction to portfolio credit risk models of the factor model type. In factor models, the dependence between the individual defaults is driven by a small number of systematic factors. When conditioning on the realisation of these factors the defaults become...

In this paper we present a tree model for defaultable bond prices which can be used for the pricing of credit derivatives. The model is based upon the two-factor Hull-White (1994) model for default-free interest rates, where one of the factors is taken to be the credit spread of the defaultable...

In this paper we examine the problem of partially hedging a given credit risk exposure. We derive hedges which satisfy certain optimality criteria: For a given investment into the hedge they minimize the remaining risk, or vice versa. This is motivated by the fact that it is a core business of...

The current paper presents a short survey of stochastic models of risk control and dividend optimization techniques for a financial corporation. While being close to consumption/investment models of Mathematical Finance, dividend optimization models possess special features which do not allow...

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...

The aim of this paper is the valuation and hedging of defaultable bonds and options on defaultable bonds. The Heath/Jarrow/Morton-framework is used to model the interest rate risk, and the time of default is determined by the first jump time of a point process. (...)

We generalize the paper of Hofmann, Platen, and Schweizer (1992) to jump-diffusion models. First we introduce securities which are replicable in a self-financing way.