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arXiv · 1209.5953

Optimization problem and mean variance hedging on defaultable claims

Stephane Goutte·Armand Ngoupeyou
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Abstract

We study the pricing and the hedging of claim ψ which depends on the default times of two firms A and B. In fact, we assume that, in the market, we can not buy or sell any defaultable bond of the firm B but we can only trade defaultable bond of the firm A. Our aim is then to find the best price and hedging of ψ using only bond of the firm A. Hence, we solve this problem in two cases: firstly in a Markov framework using indifference price and solving a system of Hamilton-Jacobi-Bellman equations, secondly, in a more general framework, using the mean variance hedging approach and solving backward stochastic differential equations (BSDE).

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Stephane Goutte, Armand Ngoupeyou. 2012-09-26. Optimization problem and mean variance hedging on defaultable claims. https://arxiv.org/abs/1209.5953

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