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Utility Valuation of Credit Derivatives: Single and Two-Name Cases

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Advances in Mathematical Finance

Part of the book series: Applied and Numerical Harmonic Analysis ((ANHA))

Summary

We study the effect of risk aversion on the valuation of credit derivatives. Using the technology of utility-indiffierence valuation in intensity-based models of default risk, we analyze resulting yield spreads for single-name defaultable bonds and a simple representative two-name credit derivative. The impact of risk averse valuation on prices and yield spreads is expressed in terms of “effective correlation.”

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Author information

Authors and Affiliations

  1. ORFE Department, Princeton University, E-Quad Princeton, NJ 08544, USA

    Ronnie Sircar

  2. Department of Mathematics and Information Department of Risk and Operations Management, The University of Texas at Austin, Austin, TX 78712, USA

    Thaleia Zariphopoulou

Authors
  1. Ronnie Sircar
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  2. Thaleia Zariphopoulou
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Editor information

Editors and Affiliations

  1. Robert H. Smith School of Business Van Munching Hall, University of Maryland, College Park, MD 20742, USA

    Michael C. Fu

  2. Johnson Graduate School of Management 451 Sage Hall, Cornell University, Ithaca, NY 14853, USA

    Robert A. Jarrow

  3. Department of Mathematics, 1326 Stevenson Center Vanderbilt University, Nashville, TN 37240, USA

    Ju-Yi J. Yen

  4. Haskayne School of Business Scurfield Hall, University of Calgary, Calgary, AB T2N 1N4, Canada

    Robert J. Elliott

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© 2007 Birkhäuser Boston

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Sircar, R., Zariphopoulou, T. (2007). Utility Valuation of Credit Derivatives: Single and Two-Name Cases. In: Fu, M.C., Jarrow, R.A., Yen, JY.J., Elliott, R.J. (eds) Advances in Mathematical Finance. Applied and Numerical Harmonic Analysis. Birkhäuser Boston. https://doi.org/10.1007/978-0-8176-4545-8_15

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