2014/12/03 by Giovanni Mottola, Mottola, Giovanni
Business, Management and Accounting · Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Credit Risk and Financial Regulations #FOS: Economics and business #Financial Reporting and Valuation Research #Insurance and Financial Risk Management #Mathematical Finance (q-fin.MF) #Pricing of Securities (q-fin.PR) #Stochastic processes and financial applications #q-fin.MF #q-fin.PR
paper · pdf · doi:10.48550/arxiv.1412.1325
24 pages
openalex publication_date 2014/12/03 · arxiv created 2015/02/26 · arxiv updated 2015/03/02 · openalex created_date 2021/02/01 · openalex updated_date 2026/07/28
In this work we study the price-hedge issue for general defaultable contracts characterized by the presence of a contingent CSA of switching type. This is a contingent risk mitigation mechanism that allow the counterparties of a defaultable contract to switch from zero to full/perfect collateralization and switch back whenever until maturity T paying some instantaneous switching costs , taking in account in the picture CVA, collateralization and the funding problem. We have been lead to the study of this theoretical pricing/hedging problem, by the economic significance of this type of mechanism which allows a greater flexibility in managing all the defaultable contract risks with respect to the "standard" non contingent mitigation mechanisms (as full or partial collateralization). In particular, our approach through hedging strategy decomposition of the claim (proposition 2.2.5) and its price-hedge representation through system of nonlinear reflected BSDE (theorem 3.2.4) are the main contribution of the work.