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Dynamic Hedging of ...
Dynamic Hedging of Portfolio Credit Risk in a Markov Copula Model
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Bielecki, Tomasz R. (author)
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Cousin, Areski (author)
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Crépey, Stéphane (author)
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- Herbertsson, Alexander, 1977 (author)
- Gothenburg University,Göteborgs universitet,Institutionen för nationalekonomi med statistik,Department of Economics
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(creator_code:org_t)
- 2013-05-15
- 2014
- English.
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In: Journal of Optimization Theory and Applications. - : Springer Science and Business Media LLC. - 0022-3239 .- 1573-2878. ; 161:1, s. 90-102
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Abstract
Subject headings
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- We devise a bottom-up dynamic model of portfolio credit risk where instantaneous contagion is represented by the possibility of simultaneous defaults. Due to a Markovian copula nature of the model, calibration of marginals and dependence parameters can be performed separately using a two-step procedure, much like in a standard static copula setup. In this sense this solves the bottom-up top-down puzzle which the CDO industry had been trying to do for a long time. This model can be used for any dynamic portfolio credit risk issue, such as dynamic hedging of CDOs by CDSs, or CVA computations on credit portfolios.
Subject headings
- SAMHÄLLSVETENSKAP -- Ekonomi och näringsliv (hsv//swe)
- SOCIAL SCIENCES -- Economics and Business (hsv//eng)
- NATURVETENSKAP -- Matematik -- Sannolikhetsteori och statistik (hsv//swe)
- NATURAL SCIENCES -- Mathematics -- Probability Theory and Statistics (hsv//eng)
- NATURVETENSKAP -- Matematik -- Beräkningsmatematik (hsv//swe)
- NATURAL SCIENCES -- Mathematics -- Computational Mathematics (hsv//eng)
Keyword
- Portfolio credit risk
- Credit derivatives
- Markov copula model
- Common shocks Dynamic hedging
Publication and Content Type
- ref (subject category)
- art (subject category)
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