A Credit-Risk Valuation under the Variance-Gamma Asset Return

Abstract

This paper considers risks of the investment portfolio, which consist of distributed mortgages and sold European call options. It is assumed that the stream of the credit payments could fall by a jump. The time of the jump is modeled by the exponential distribution. We suggest that the returns on stock are variance-gamma distributed. The value at risk, the expected shortfall and the entropic risk measure for this portfolio are calculated in closed forms. The obtained formulas exploit the values of generalized hypergeometric functions.

The Downside and Upside Beta Valuation in the Variance-Gamma Model

“…This paper is set to compute the downside and upside betas for the investment portfolio with the variancegamma, gamma distributed and deterministic asset returns. The gamma and deterministic returns relate to the modeling of credit risk, see Ivanov [21] and My [33]. As usually, the variance-gamma random variables are modeled as the normal mean-variance mixtures and it is supposed that the normal distributions are correlated.…”