Hedging in bond markets by the Clark-Ocone formula

2013/04/23 by Nicolas Privault, Privault, Nicolas, Timothy Robin Teng +1 · 1 citation
Economics, Econometrics and Finance · Mathematics · #60H07 #91B28 #FOS: Economics and business #FOS: Mathematics #Pricing of Securities (q-fin.PR) #Probability (math.PR) #math.PR #msc:60H07 #msc:91B28 #q-fin.PR

paper · pdf · doi:10.48550/arxiv.1304.6165

arxiv created 2013/04/23 · arxiv updated 2013/04/24

Abstract

Hedging strategies in bond markets are computed by martingale representation and the Clark-Ocone formula under the choice of a suitable of numeraire, in a model driven by the dynamics of bond prices. Applications are given to the hedging of swaptions and other interest rate derivatives, and our approach is compared to delta hedging when the underlying swap rate is modeled by a diffusion process.

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• Clark-Ocone formula for the maximum of processes with the stochastic intensity and its application

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