Utility indifference valuation of corporate bond with credit rating migration by structure approach
An indifference pricing model for corporate bond with rating migration risk is established in this article. Under the structural framework, the credit rating migration is modeled by the first attempt in an incomplete market, so far as we know. The model results in a HJB system. With the help of the...
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| Veröffentlicht in: | Economic modelling 2016-04, Vol.54, p.339-346 |
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| creator | Liang, Jin Zhao, Yuejuan Zhang, Xudan |
| description | An indifference pricing model for corporate bond with rating migration risk is established in this article. Under the structural framework, the credit rating migration is modeled by the first attempt in an incomplete market, so far as we know. The model results in a HJB system. With the help of the dynamic programming theory, a closed form solution is derived by imposing a condition on the credit rating migration boundary. With the explicit migration boundary and closed form solution, the model is easy to be applied in practice. Based on the pricing formula, the impacts of the parameters on the indifference price are analyzed and relative financial explanations are discussed.
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| doi_str_mv | 10.1016/j.econmod.2015.12.002 |
| format | Article |
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[Display omitted]</description><subject>Corporate bonds</subject><subject>Credit rating</subject><subject>Credit rating migration</subject><subject>Credit ratings</subject><subject>Dynamic programming</subject><subject>HJB equation system</subject><subject>Mathematical models</subject><subject>Structural model</subject><subject>Studies</subject><subject>Utility functions</subject><subject>Utility indifference valuation</subject><issn>0264-9993</issn><issn>1873-6122</issn><fulltext>true</fulltext><rsrctype>article</rsrctype><creationdate>2016</creationdate><recordtype>article</recordtype><recordid>eNqFkE1r3DAQhkVJoZu0P6Eg6CUXO_qwJOtUSkjawkIuzVnI41GixWttJTlh_329bE659DQwPO98PIR85azljOubXYuQ5n0aW8G4arloGRMfyIb3RjaaC3FBNkzorrHWyk_kspQdWwne2Q2BxxqnWI80zmMMATPOgPTFT4uvMc00BQopH1L2FemQ5pG-xvpMIeMYK127cX6i-_iUz_hwpKXmBeqSkfrDIScPz5_Jx-Cngl_e6hV5vL_7c_ur2T78_H37Y9tAp0xtpBeaGdl5O3KvtDZSWg5hgADGdn0YLQxDj37QynTMCpRKofK9FkYNNoC8ItfnuevavwuW6vaxAE6TnzEtxfGe877Tou9W9Ns7dJeWPK_XOW6MUUwJeaLUmYKcSskY3CHHvc9Hx5k7qXc796bendQ7Ltwqds19P-dw_fYlYnYF4knsGDNCdWOK_5nwDzJNkMs</recordid><startdate>201604</startdate><enddate>201604</enddate><creator>Liang, Jin</creator><creator>Zhao, Yuejuan</creator><creator>Zhang, Xudan</creator><general>Elsevier B.V</general><general>Elsevier Science Ltd</general><scope>AAYXX</scope><scope>CITATION</scope><scope>8BJ</scope><scope>FQK</scope><scope>JBE</scope><orcidid>https://orcid.org/0000-0002-4096-7334</orcidid></search><sort><creationdate>201604</creationdate><title>Utility indifference valuation of corporate bond with credit rating migration by structure approach</title><author>Liang, Jin ; Zhao, Yuejuan ; Zhang, Xudan</author></sort><facets><frbrtype>5</frbrtype><frbrgroupid>cdi_FETCH-LOGICAL-c457t-3a260734a9d1a56673391cfbcfc7948fd9cbb8eab6574092e355e5a86275b9fc3</frbrgroupid><rsrctype>articles</rsrctype><prefilter>articles</prefilter><language>eng</language><creationdate>2016</creationdate><topic>Corporate bonds</topic><topic>Credit rating</topic><topic>Credit rating migration</topic><topic>Credit ratings</topic><topic>Dynamic programming</topic><topic>HJB equation system</topic><topic>Mathematical models</topic><topic>Structural model</topic><topic>Studies</topic><topic>Utility functions</topic><topic>Utility indifference valuation</topic><toplevel>peer_reviewed</toplevel><toplevel>online_resources</toplevel><creatorcontrib>Liang, Jin</creatorcontrib><creatorcontrib>Zhao, Yuejuan</creatorcontrib><creatorcontrib>Zhang, Xudan</creatorcontrib><collection>CrossRef</collection><collection>International Bibliography of the Social Sciences (IBSS)</collection><collection>International Bibliography of the Social Sciences</collection><collection>International Bibliography of the Social Sciences</collection><jtitle>Economic modelling</jtitle></facets><delivery><delcategory>Remote Search Resource</delcategory><fulltext>fulltext</fulltext></delivery><addata><au>Liang, Jin</au><au>Zhao, Yuejuan</au><au>Zhang, Xudan</au><format>journal</format><genre>article</genre><ristype>JOUR</ristype><atitle>Utility indifference valuation of corporate bond with credit rating migration by structure approach</atitle><jtitle>Economic modelling</jtitle><date>2016-04</date><risdate>2016</risdate><volume>54</volume><spage>339</spage><epage>346</epage><pages>339-346</pages><issn>0264-9993</issn><eissn>1873-6122</eissn><abstract>An indifference pricing model for corporate bond with rating migration risk is established in this article. Under the structural framework, the credit rating migration is modeled by the first attempt in an incomplete market, so far as we know. The model results in a HJB system. With the help of the dynamic programming theory, a closed form solution is derived by imposing a condition on the credit rating migration boundary. With the explicit migration boundary and closed form solution, the model is easy to be applied in practice. Based on the pricing formula, the impacts of the parameters on the indifference price are analyzed and relative financial explanations are discussed.
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| subjects | Corporate bonds Credit rating Credit rating migration Credit ratings Dynamic programming HJB equation system Mathematical models Structural model Studies Utility functions Utility indifference valuation |
| title | Utility indifference valuation of corporate bond with credit rating migration by structure approach |
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