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A Hybrid Pricing Model for Contingent Claims with Credit Risk

  • Manuel Ammann
Chapter
  • 642 Downloads
Part of the Springer Finance book series (FINANCE)

Abstract

In this chapter we propose a hybrid pricing model for contingent claims with counterparty risk. We call the model hybrid because it borrows both from firm value models and from intensity models. Specifically, the firm value models the recovery rate while, at the same time, an intensity-based bankruptcy process determines the occurrence of default. We study the hybrid model under various assumptions with respect to the bankruptcy process and interest rates. In addition to pricing derivative securities which are subject to counterparty default risk, we propose a pricing approach for default-free options on credit-risky bonds.

Keywords

Interest Rate Option Price Credit Risk Term Structure American Option 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2001

Authors and Affiliations

  • Manuel Ammann
    • 1
  1. 1.Swiss Institute of Banking and FinanceUniversity of St. GallenSt. GallenSwitzerland

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