Credit derivatives as an efficient way of transitioning to optimal portfolios

By Alla Gil

This article was first published as a chapter in Credit Derivatives, by Risk Books.

The key challenge in optimising credit-risky portfolios is measuring risk/return trade-off consistently with the pricing of overlaying instruments used for transition to an optimal portfolio. This chapter describes an original hybrid methodology that measures portfolio credit risk consistently with the pricing and hedging techniques. We construct an efficient frontier for the given portfolio, explicitly taking

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