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In an incomplete market, with incompleteness stemming from stochas-tic factors imperfectly correlated with the underlying stocks, we derive representations of homothetic (power, exponential and logarithmic) forward performance processes in factor-form using ergodic BSDE. We also develop a connection between the forward processes and infinite horizon BSDE,… (More)
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 maximiza-tion problems. Besides the uncertainty of the firm's asset value, we introduce another… (More)
In an incomplete market, with incompleteness stemming from stochas-tic factors imperfectly correlated with the underlying stocks, we derive representations of homothetic forward investment performance processes (power, exponential and logarithmic). We develop a connection with er-godic and infinite horizon quadratic BSDE, and with a risk-sensitive control… (More)
Mathematical Finance and Stochastic Analysis. Topics include backward stochastic differential equations, rough path theory, optimal investment and credit risk modeling and management. Publications Journal Articles • A multi-period bank-run model for liquidity risk (with Eva Lütkebohmert and Yajun Xiao), Review of Finance, accepted.
This paper considers exponential utility indifference pricing for a multidimensional non-traded assets model subject to inter-temporal default risk, and provides a semigroup approximation for the utility indifference price. The key tool is the splitting method. We apply our methodology to study the counterparty risk of derivatives in incomplete markets.
and by the Excellence Initiative through the project " Pricing of Risk in Incomplete Markets " within the Institutional Strategy of the University of Freiburg. The financial support is gratefully acknowledged by the first and the second authors. Several helpful comments and suggestions from Lishang Jiang, Yajun Xiao, and Qianzi Zeng are very much… (More)