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Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity
book

Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity

by Tomasz R. Bielecki, Damiano Brigo, Frédéric Patras
February 2011
Intermediate to advanced content levelIntermediate to advanced
768 pages
22h 39m
English
Bloomberg Press
Content preview from Credit Risk Frontiers: Subprime Crisis, Pricing and Hedging, CVA, MBS, Ratings, and Liquidity

Chapter 17

Pricing and Hedging with Equity-Credit Models

Benjamin Herzog

Société Générale

Julien Turc

Société Générale

Equity-credit models are pricing tools designed to value both equity and credit derivatives within a unified framework. These models are based on the assumption that any equity or credit derivative product can be hedged using common tradable assets. A typical equity-credit model identifies two major risks—mark-to-market and jump-to-default—and then hedges the former using stocks and the latter using short-term credit default swap (CDS) contracts. We start with a description of a new equity-credit model that provides enough flexibility to extract information from both the equity smile and the CDS curve. We then show how linking ...

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Publisher Resources

ISBN: 9781118003831Purchase book