Pricing Derivatives on Financial Securities Subject to Credit Risk
提出一种新方法，用于定价和套期保值涉及信用风险的衍生证券，包括标的资产违约和发行方违约两种情形，适用于公司债务和场外衍生品如互换和利率上限。
ABSTRACT This article provides a new methodology for pricing and hedging derivative securities involving credit risk. Two types of credit risks are considered. The first is where the asset underlying the derivative security may default. The second is where the writer of the derivative security may default. We apply the foreign currency analogy of Jarrow and Turnbull (1991) to decompose the dollar payoff from a risky security into a certain payoff and a “spot exchange rate.” Arbitrage‐free valuation techniques are then employed. This methodology can be applied to corporate debt and over the counter derivatives, such as swaps and caps.