Indifference of Defaultable Bonds with Stochastic Intensity models
Computational Finance
2010-03-23 v1
Abstract
The utility-based pricing of defaultable bonds in the case of stochastic intensity models of default risk is discussed. The Hamilton-Jacobi- Bellman (HJB) equations for the value functions is derived. A finite difference method is used to solve this problem. The yield-spreads for both buyer and seller are extracted. The behaviour of the spread curve given the default intensity is analyzed. Finally the impacts of the risk aversion and the correlation coefficient are discussed.
Cite
@article{arxiv.1003.4118,
title = {Indifference of Defaultable Bonds with Stochastic Intensity models},
author = {Regis Houssou and Olivier Besson},
journal= {arXiv preprint arXiv:1003.4118},
year = {2010}
}