Valuation and optimal design to defaultable security
Volume 33 / 2006
Applicationes Mathematicae 33 (2006), 305-321
MSC: 49K45, 60G35, 60H10.
DOI: 10.4064/am33-3-6
Abstract
Herein, we develop a backward stochastic differential equation (BSDE) valuation of securities with default risk. Consequently, the optimal recovery problem with quasi-linear utility functions is discussed with the help of the stochastic maximum principle. Finally, two important examples: the exponential and power utility cases are studied and their business implications are considered.
