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Pricing collateralized derivatives with an arbitrary numeraire

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Kennedy, Joanne E. (2020) Pricing collateralized derivatives with an arbitrary numeraire. Mathematical Finance, 30 (2). pp. 464-500. doi:10.1111/mafi.12227

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Official URL: https://doi.org/10.1111/mafi.12227

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Abstract

Since the 2008 crisis collateralized derivatives have become commonplace in the market. There have been many papers in recent years on pricing collateralized derivatives but the topic has been surrounded by confusion with debate focusing on whether or not a risk‐free rate needs to be assumed. In addition, as pointed out by Bielecki and Rutkowski, several authors do not pay enough attention to the pricing measure they are working in when setting up their models. The contribution of this paper is to show the pricing formula for a collateralized derivative can be derived under the usual assumptions of an arbitrage‐free economy starting from any equivalent martingale measure and associated numeraire.

Item Type: Journal Article
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
Q Science > QA Mathematics
Divisions: Faculty of Science > Statistics
Library of Congress Subject Headings (LCSH): Collateralized debt obligations -- Mathematical models, Credit derivatives, Risk -- Mathematical models
Journal or Publication Title: Mathematical Finance
Publisher: Wiley-Blackwell Publishing, Inc.
ISSN: 0960-1627
Official Date: April 2020
Dates:
DateEvent
April 2020Published
6 November 2019Available
1 May 2019Accepted
Date of first compliant deposit: 17 May 2019
Volume: 30
Number: 2
Page Range: pp. 464-500
DOI: 10.1111/mafi.12227
Status: Peer Reviewed
Publication Status: Published
Publisher Statement: This is the peer reviewed version of the following article: Kennedy, Joanne E. (2019) Pricing collateralized derivatives with an arbitrary numeraire. Mathematical Finance, which has been published in final form at https://doi.org/10.1111/mafi.12227. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.
Access rights to Published version: Restricted or Subscription Access

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