Pricing and Hedging in Affine Models with Possibility of Default
Pricing and Hedging in Affine Models with Possibility of Default
We propose a general framework for the simultaneous modeling of equity, government bonds, corporate bonds, and derivatives. Uncertainty is generated by a general affine Markov process. The setting allows for stochastic volatility, jumps, the possibility of default, and correlation between different assets. We show how to calculate discounted complex moments …