Hedging of Basket Credit Derivatives in Credit Default Swap Market

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Hedging of Basket Credit Derivatives in Credit Default Swap Market

by Tomasz R. Bielecki of the Illinois Institute of Technology,
Monique Jeanblanc of the Université d'Évry Val d'Essonne, and
Marek Rutkowski of the University of New South Wales & Warsaw University of Technology

December 27, 2006

Introduction: This paper is the first in a series of works in which we shall conduct a systematic mathematical study of credit derivatives of the swap type. The formal set-up has been chosen here to be relatively simple, so that we can illuminate and explain some non-trivial aspects of the theory of credit related swap contracts without engaging in complicated technical issues that will necessarily transpire in a more realistic model, which will be studied in a follow-up paper.

Published in: Journal of Credit Risk, Vol. 3, No. 1, (Spring 2007), pp. 91-132.

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