Next Article in Journal
Stochastic Assessments of Urban Employees’ Pension Plan of China
Next Article in Special Issue
Maslow Portfolio Selection for Individuals with Low Financial Sustainability
Previous Article in Journal
Geographically Weighted Regression Models in Estimating Median Home Prices in Towns of Massachusetts Based on an Urban Sustainability Framework
Previous Article in Special Issue
Dependence Structures and Systemic Risk of Government Securities Markets in Central and Eastern Europe: A CoVaR-Copula Approach
Article Menu
Issue 4 (April) cover image

Export Article

Open AccessArticle

The Study of Utility Valuation of Single-Name Credit Derivatives with the Fast-Scale Stochastic Volatility Correction

1
Department of Mathematics and Statistics, Curtin University, Perth, WA 6845, Australia
2
School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China
3
Department of Finance, Wuhan Technology and Business University, Wuhan 430065, China
*
Authors to whom correspondence should be addressed.
Sustainability 2018, 10(4), 1027; https://doi.org/10.3390/su10041027
Received: 6 February 2018 / Revised: 12 March 2018 / Accepted: 20 March 2018 / Published: 30 March 2018
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
  |  
PDF [460 KB, uploaded 3 May 2018]
  |  

Abstract

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. View Full-Text
Keywords: utility; credit derivatives; stochastic volatility; asymptotic approximation; risk aversion utility; credit derivatives; stochastic volatility; asymptotic approximation; risk aversion
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
SciFeed

Share & Cite This Article

MDPI and ACS Style

Liu, S.; Zhou, Y.; Wiwatanapataphee, B.; Wu, Y.; Ge, X. The Study of Utility Valuation of Single-Name Credit Derivatives with the Fast-Scale Stochastic Volatility Correction. Sustainability 2018, 10, 1027.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Sustainability EISSN 2071-1050 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top