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Pricing and hedging credit-risky derivatives using corporate bonds
Includes bibliographical references.
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| Other Authors: | |
| Format: | Thesis |
| Language: | English |
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School of Economics
2014
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| _version_ | 1867614389439299584 |
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| access_status_str | Open Access |
| author | Murefu, Stephen Ngonidzashe |
| author2 | Abraham, Haim |
| author_browse | Abraham, Haim Murefu, Stephen Ngonidzashe |
| author_facet | Abraham, Haim Murefu, Stephen Ngonidzashe |
| author_sort | Murefu, Stephen Ngonidzashe |
| collection | Thesis |
| description | Includes bibliographical references. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/6954 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:51:16.159Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2014 |
| publishDateRange | 2014 |
| publishDateSort | 2014 |
| publisher | School of Economics |
| publisherStr | School of Economics |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/6954 Pricing and hedging credit-risky derivatives using corporate bonds Murefu, Stephen Ngonidzashe Abraham, Haim Economics Includes bibliographical references. The benefits of being a bondholder are well appreciated and documented in the world of investments. However, most of these holdings are in the risk free (no chances of defaulting) government bonds (Treasuries). It follows then that by investing in the riskier bonds (corporate bonds); the investor should reap more benefits (higher returns). The argument lies in the trade off, yield and risk. higher yield results in higher credit risk (the probability of default is higher). The answer is to invest in corporate bonds and simultaneously find ways to minimise the credit risk associated with those purchases. Credit derivatives (options in particular for this paper) are financial instruments that can aid in the management of credit risk by insuring against adverse movements in the credit quality of the borrower. That is. if the borrower defaults, the bondholder will incur loss on the bond investment but the losses can be offset by gains in the credit derivative. The credit risk can be fully offset on condition that the credit derivative is priced and hedged properly. This paper looks at the use of the Hull & White Model and the Jarrow & Turnbull Model to price and hedge credit risky options using corporate bonds and their comparable Treasury bonds. The models are taken from their papers. ""The Price of Default"", (1992) and ""Pricing Derivatives on Financial Securities Subject to Credit Risk"", (1995), respectively. Their models develop procedures to estimate the expected loss of default on a derivative using the price of risky debt issued by the counterparty in the derivative contract. 2014-09-08T09:52:17Z 2014-09-08T09:52:17Z 2003 Master Thesis Masters MCom http://hdl.handle.net/11427/6954 eng application/pdf School of Economics Faculty of Commerce University of Cape Town |
| spellingShingle | Economics Murefu, Stephen Ngonidzashe Pricing and hedging credit-risky derivatives using corporate bonds |
| thesis_degree_str | Master's |
| title | Pricing and hedging credit-risky derivatives using corporate bonds |
| title_full | Pricing and hedging credit-risky derivatives using corporate bonds |
| title_fullStr | Pricing and hedging credit-risky derivatives using corporate bonds |
| title_full_unstemmed | Pricing and hedging credit-risky derivatives using corporate bonds |
| title_short | Pricing and hedging credit-risky derivatives using corporate bonds |
| title_sort | pricing and hedging credit risky derivatives using corporate bonds |
| topic | Economics |
| url | http://hdl.handle.net/11427/6954 |
| work_keys_str_mv | AT murefustephenngonidzashe pricingandhedgingcreditriskyderivativesusingcorporatebonds |