Pricing and hedging of defaultable claims in discontinuous market.
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Credit risk has become one of the highest-pro le risk facing participants in the nancial markets. In this dissertation, we study the pricing and hedging of defaultable claim in a discontinuous market. Here, we present the pricing of credit default swap under stochastic intensity within the set up of a generic reduced form credit risk model. In this context, we present di erent approaches to pricing and hedging of defaultable claim in a discontinuous market and then pro er results concerning the trading of credit default swap. We rst assume that the default intensity is deterministic and the rate of interest is equal to zero. We derive a closed-form solution for replicating strategy for an arbitrary non-dividend paying defaultable claim. We then extend the established results under deterministic intensity to the case of stochastic intensity, where the objective is to hedge both default (jump) risk and the spread (volatility) risk.