Reports from Sun Yat-sen University Advance Knowledge in Mathematics (Utility Indifference Valuation for Defaultable Corporate Bond With Credit Rating Migration)

2020 DEC 29 (NewsRx) -- By a News Reporter-Staff News Editor at Math Daily News -- Investigators discuss new findings in Mathematics. According to news reporting from Guangzhou, People’s Republic of China, by NewsRx journalists, research stated, “Credit risk modeling by debt pricing has been a popular theme in both academia and practice since the subprime crisis. In this paper, we devote our study to the indifferent price of a corporate bond with credit risk involving both default risk and credit rating migration risk in an incomplete market.”

Financial support for this research came from National Natural Science Foundation of China.

The news correspondents obtained a quote from the research from Sun Yat-sen University, “The firm’s stock and a financial index on the market as tradable assets are introduced to hedge the credit risk, and the bond price is determined by the indifference of investors’ utilities with and without holding the bond. The models are established under the structural framework and result in Hamilton-Jacobi-Bellman (HJB) systems regarding utilities subject to default boundary and multiple migration boundaries. According to dynamic programming theory, closed-form solutions for pricing formulas are derived by implementing an inverted iteration program to overcome the joint effect of default and multiple credit rating migration.”

According to the news reporters, the research concluded: “Therefore, with the derived explicit pricing formulas for the corporate bond, the models can be easily applied in practice, and investors can generate their strategies of hedging the credit risk by easily analyzing the impacts of the parameters on the bond price.”

For more information on this research see: Utility Indifference Valuation for Defaultable Corporate Bond With Credit Rating Migration. Mathematics, 2020;8(11):2033. Mathematics can be contacted at: Mdpi, St Alban-Anlage 66, Ch-4052 Basel, Switzerland.

Our news journalists report that additional information may be obtained by contacting Zhenzhen Wang, Sun Yat-sen University, School of Mathematics, Guangzhou 510275, People’s Republic of China. Additional authors for this research include Zhehao Huang and Zhenghui Li.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.3390/math8112033. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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