TY - CHAP
T1 - Credit derivatives and risk aversion
AU - Leung, Tim
AU - Sircar, Ronnie
AU - Zariphopoulou, Thaleia
N1 - Funding Information:
The work of Tim Leung was partially supported by NSF grant DMS-0456195 and a Charlotte Elizabeth Procter Fellowship. The work of Ronnie Sircar was partially supported by NSF grant DMS-0456195, and the work of Thaleia Zariphopoulou was partially supported by NSF grants DMS-0456118 and DMS-0091946.
PY - 2008
Y1 - 2008
N2 - We discuss the valuation of credit derivatives in extreme regimes such as when the time-to-maturity is short, or when payoff is contingent upon a large number of defaults, as with senior tranches of collateralized debt obligations. In these cases, risk aversion may play an important role, especially when there is little liquidity, and utility-indifference valuation may apply. Specifically, we analyze how short-term yield spreads from defaultable bonds in a structural model may be raised due to investor risk aversion.
AB - We discuss the valuation of credit derivatives in extreme regimes such as when the time-to-maturity is short, or when payoff is contingent upon a large number of defaults, as with senior tranches of collateralized debt obligations. In these cases, risk aversion may play an important role, especially when there is little liquidity, and utility-indifference valuation may apply. Specifically, we analyze how short-term yield spreads from defaultable bonds in a structural model may be raised due to investor risk aversion.
UR - http://www.scopus.com/inward/record.url?scp=56849098863&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=56849098863&partnerID=8YFLogxK
U2 - 10.1016/S0731-9053(08)22011-6
DO - 10.1016/S0731-9053(08)22011-6
M3 - Chapter
AN - SCOPUS:56849098863
SN - 9781848551961
T3 - Advances in Econometrics
SP - 275
EP - 291
BT - Econometrics and Risk Management
A2 - Fouque, Jean-Pierre
A2 - Fomby, Thomas
A2 - Solna, Knut
ER -