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A fully non-linear PDE problem from pricing CDS with counterparty risk

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  • In this study, we establish a financial credit derivative pricing model for a contract which is subject to counterparty risks. The model leads to a fully nonlinear partial differential equation problem. We study this PDE problem and obtained a solution as the limit of a sequence of semi-linear PDE problems which also arise from financial models. Moreover, the problems and methods build a bridge between two main risk frameworks: structure and intensity models. We obtain the uniqueness, regularities and some properties of the solution of this problem.
    Mathematics Subject Classification: 35M99, 91G80.


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