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In an incomplete market, with incompleteness stemming from stochastic 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)

- Vicky Henderson, Gechun Liang
- Finance and Stochastics
- 2014

- Gechun Liang
- 2009

We consider the following backward stochastic equation dYt = −f0(t, Yt, L(M)t)dt− d ∑ i=1 fi(t, Yt)dB i t + dMt with YT = ξ, on a general filtered probability space (Ω,F ,Ft, P ), where B is a d-dimensional Brownian motion, L is a prescribed (non-linear) mapping which sends a square-integrable M to an adapted process L(M), and M , a correction term, is a… (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 maximization problems. Besides the uncertainty of the firm’s asset value, we introduce another… (More)

- Gechun Liang
- SIAM J. Control and Optimization
- 2015

In an incomplete market, with incompleteness stemming from stochastic 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 ergodic and infinite horizon quadratic BSDE, and with a risk-sensitive control… (More)

- Jianwei Lin, Gechun Liang, Sen Wu, Harry Zheng
- APJOR
- 2011

We propose a unified structural credit risk model incorporating insolvency, recovery and rollover risks. The firm finances itself mainly by issuing shortand long-term debt. Short-term debt can have either a discrete or a more realistic staggered tenor structure. We show that a unique threshold strategy (i.e., a bank run barrier) exists for short-term… (More)

- Vicky Henderson, Gechun Liang
- SIAM J. Control and Optimization
- 2016

This paper considers exponential utility indifference pricing for a multidimensional nontraded 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.

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