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A Modified Structural Model for Credit Risk – Utility Indifference Valuation.

Abstract:

This paper modifies the classical structural models for credit risk by embedding them into the framework of optimal portfolio problems in an incomplete market. The price of corporate bonds is derived based on the indifference between the investor's two utility maximization problems. Besides the uncertainty of the firm's asset value, we introduce another diffusion process, which comes from the firm's stock value, to drive credit risk. This results in the different behaviors of the credit sprea...

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Publisher:
Oxford-Man Institute of Quantitative Finance
Series:
Working Papers
Publication date:
2008-12-10
Language:
English
UUID:
uuid:aa7369ad-9f99-4870-b644-5bc8e0b848b1
Local pid:
oai:economics.ouls.ox.ac.uk:13037
Deposit date:
2011-08-16

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