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Title: Local Risk-Minimization for Defaultable Claims with Recovery Process

We study the local risk-minimization approach for defaultable claims with random recovery at default time, seen as payment streams on the random interval [0,{tau} Logical-And T], where T denotes the fixed time-horizon. We find the pseudo-locally risk-minimizing strategy in the case when the agent information takes into account the possibility of a default event (local risk-minimization with G-strategies) and we provide an application in the case of a corporate bond. We also discuss the problem of finding a pseudo-locally risk-minimizing strategy if we suppose the agent obtains her information only by observing the non-defaultable assets.
Authors:
 [1] ;  [2]
  1. LMU, Department of Mathematics (Germany)
  2. Universita degli Studi di Perugia, Dipartimento di Matematica e Informatica (Italy)
Publication Date:
OSTI Identifier:
22043764
Resource Type:
Journal Article
Resource Relation:
Journal Name: Applied Mathematics and Optimization; Journal Volume: 65; Journal Issue: 3; Other Information: Copyright (c) 2012 Springer Science+Business Media, LLC; Country of input: International Atomic Energy Agency (IAEA)
Country of Publication:
United States
Language:
English
Subject:
97 MATHEMATICAL METHODS AND COMPUTING; BUSINESS; FINANCING; HAZARDS; MATHEMATICAL MODELS; MATHEMATICAL SOLUTIONS; MATHEMATICS; MINIMIZATION; RANDOMNESS; STREAMS