Abstract
The paper examines a type of insurance contract for which secondary markets do exist, default risk insurance is implicit m corporate bonds and other risky debts It applies risk neutral martingale measure pricing to evaluate the option for a borrower with default risk, to prepay a fixed rate loan A simple "matchbox" example ~s presented with a spreadsheet treatment.
KEYWORDS C-I risk; C-3 risk; credit risk insurance, default risk; interest rate risk; financial reserve; insurance reserve, market values, martingale; optimal stopping; premium process; risk process; swap, swaption
Volume
22:1
Page
81-96
Year
1992
Categories
Financial and Statistical Methods
Asset and Econometric Modeling
Credit Spreads
Financial and Statistical Methods
Asset and Econometric Modeling
Duration
Actuarial Applications and Methodologies
Regulation and Law
Risk-Based Capital
Business Areas
Other Lines of Business
Business Areas
Surety
Publications
ASTIN Bulletin
