The study of utility valuation of single-name credit derivatives with the fast-scale stochastic volatility correction
© 2018 by the authors. In this paper, we study the risk aversion on valuing the single-name credit derivatives with the fast-scale stochastic volatility correction. Two specific utility forms, including the exponential utility and the power utility, are tested as examples in our work. We apply the a...
| Main Authors: | , , , , |
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| Format: | Journal Article |
| Published: |
M D P I AG
2018
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| Online Access: | http://hdl.handle.net/20.500.11937/67930 |
| _version_ | 1848761696677527552 |
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| author | Liu, S. Zhou, Y. Wiwatanapataphee, Benchawan Wu, Yong Hong Ge, X. |
| author_facet | Liu, S. Zhou, Y. Wiwatanapataphee, Benchawan Wu, Yong Hong Ge, X. |
| author_sort | Liu, S. |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | © 2018 by the authors. In this paper, we study the risk aversion on valuing the single-name credit derivatives with the fast-scale stochastic volatility correction. Two specific utility forms, including the exponential utility and the power utility, are tested as examples in our work. We apply the asymptotic approximation to obtain the solution of the non-linear PDE, and make a comparison of the utility before and after the stochastic volatility modification, and we find that incorporation of fast-scale volatility will lower down the utility. By using the indifference price, we also give the yield spread impacted by the risk adverse valuation. We find that by considering the default risk, yield spread is sloping in a short period and converge in a long run. |
| first_indexed | 2025-11-14T10:35:47Z |
| format | Journal Article |
| id | curtin-20.500.11937-67930 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T10:35:47Z |
| publishDate | 2018 |
| publisher | M D P I AG |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-679302018-07-13T00:51:27Z The study of utility valuation of single-name credit derivatives with the fast-scale stochastic volatility correction Liu, S. Zhou, Y. Wiwatanapataphee, Benchawan Wu, Yong Hong Ge, X. © 2018 by the authors. In this paper, we study the risk aversion on valuing the single-name credit derivatives with the fast-scale stochastic volatility correction. Two specific utility forms, including the exponential utility and the power utility, are tested as examples in our work. We apply the asymptotic approximation to obtain the solution of the non-linear PDE, and make a comparison of the utility before and after the stochastic volatility modification, and we find that incorporation of fast-scale volatility will lower down the utility. By using the indifference price, we also give the yield spread impacted by the risk adverse valuation. We find that by considering the default risk, yield spread is sloping in a short period and converge in a long run. 2018 Journal Article http://hdl.handle.net/20.500.11937/67930 10.3390/su10041027 http://creativecommons.org/licenses/by/4.0/ M D P I AG fulltext |
| spellingShingle | Liu, S. Zhou, Y. Wiwatanapataphee, Benchawan Wu, Yong Hong Ge, X. The study of utility valuation of single-name credit derivatives with the fast-scale stochastic volatility correction |
| title | The study of utility valuation of single-name credit derivatives with the fast-scale stochastic volatility correction |
| title_full | The study of utility valuation of single-name credit derivatives with the fast-scale stochastic volatility correction |
| title_fullStr | The study of utility valuation of single-name credit derivatives with the fast-scale stochastic volatility correction |
| title_full_unstemmed | The study of utility valuation of single-name credit derivatives with the fast-scale stochastic volatility correction |
| title_short | The study of utility valuation of single-name credit derivatives with the fast-scale stochastic volatility correction |
| title_sort | study of utility valuation of single-name credit derivatives with the fast-scale stochastic volatility correction |
| url | http://hdl.handle.net/20.500.11937/67930 |