Some short elements on hedging credit derivatives
Philippe Durand, Jean-Frédéric Jouanin (2007)
ESAIM: Probability and Statistics
Similarity:
In practice, it is well known that hedging a derivative instrument can never be perfect. In the case of credit derivatives ( synthetic CDO tranche products), a trader will have to face some specific difficulties. The first one is the inconsistence between most of the existing pricing models, where the risk is the occurrence of defaults, and the real hedging strategy, where the trader will protect his portfolio against small CDS spread movements. The second one, which is the main subject...