Hostname: page-component-78c5997874-4rdpn Total loading time: 0 Render date: 2024-11-03T00:49:16.229Z Has data issue: false hasContentIssue false
  • English
  • Français

Credit Risk and Prepayment Option

Published online by Cambridge University Press:  29 August 2014

Philippe Artzner  and
Freddy Delbaen
Philippe Artzner*
Affiliation:
Université Louis Pasteur
Freddy Delbaen*
Affiliation:
Vrije Universiteit Brussel
*
Institut de Recherches Mathématiques Avancéeset Labor atoire de Recherches en Gestion, 7 rue René Descartes, F 67084 Strasbourg Cedex, FranceA18604@FRCCSC21.
Department of Mathematics and Information Sciences, V.U.B., Institute of Actuarial Sciences, Pleinlaan 2, B 1050 Brussels, Belgium[email protected].
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

The paper examines a type of insurance contract for which secondary markets do exist: default risk insurance is implicit in corporate bonds and other risky debts. It applies risk neutral martingale measure pricing to evaluate the option for a borrower with default risk, to prepay a fixed rate loan. A simple “matchbox” example is presented with a spreadsheet treatment.

Keywords

C-1 riskC-3 riskcredit risk insurancedefault riskinterest rate riskfinancial reserveinsurance reservemarket valuesmartingaleoptimal stoppingpremium processrisk processswapswaption
Type
Workshop
Information
ASTIN Bulletin: The Journal of the IAA , Volume 22 , Issue 1 , May 1992 , pp. 81 - 96
Copyright
Copyright © International Actuarial Association 1992

References

REFERENCES

Artzner, Ph. (1990) Discussion of “An Excess Spread Approach to Nonparticipating Policies” by Griffin, M.. Transactions of the Society of Actuaries 42, 246–250.Google Scholar
Artzner, Ph. and Delbaen, F. (1990a) “Finem Lauda” or the Risks in Swaps. Insurance: Mathematics and Economics 9, 296–303.Google Scholar
Artzner, Ph. and Delbaen, F. (1990b) Optional and Dual Predictable Projections in Finance and Insurance, Working Paper, Strasbourg.Google Scholar
Artzner, Ph. and Shiu, E. (1989) Interest Rate Risk, Swiss Association of Actuaries, International Summer School.Google Scholar
Bowers, N.et al. (1986) Actuarial Mathematics. Society of Actuaries, Schaumburg, Il.Google Scholar
Dacunha-Castelle, D. and Duflo, M. (1986) Probabilities and Statistics, Vol. 2, Springer-Verlag, New York, translation of Probabilites et Statistiques, Vol. 2, Masson, Paris, 1983.Google Scholar
Duffie, D. (1988) Security Markets: Stochastic Models. Academic Press, New York.Google Scholar
Duffie, D. (1989) Futures Markets. Prentice-Hall, Englewood Cliffs, NJ.Google Scholar
Gerber, H. (1979) An Introduction to Mathematical Risk Theory. Huebner Foundation Monograph No. 8. Irwin, IL.Google Scholar
Harrison, M. and Kreps, D. (1979) Martingales and Arbitrage in Multiperiod Security Markets. Journal of Economic Theory 20, 382–408.CrossRefGoogle Scholar
Huang, C. F. and Litzenberger, D. (1988) Foundations for Financial Economics. North-Holland, Amsterdam.Google Scholar
Sharpe, W. and Alexander, G. (1990) Investments, 4th edn. Prentive-Hall, Englewood Cliffs, NJ.Google Scholar
Tilley, J. (1989) Whither Actuarial science? Borrowing Concepts and Methods from other Disciplines. 1889-1989 Centennial Celebration of the Actuarial Profession in North America. Proceedings, Volume 2, 523–541. Society of Actuaries, 475 N. Martingale Road, Schaumburg, Il.Google Scholar
Turnbull, S. (1987) Swaps: A Zero sum game?Financial Management, 15–22, Spring 1987.Google Scholar