Portfolio optimization problem with default risk

سال انتشار: 1391
نوع سند: مقاله کنفرانسی
زبان: انگلیسی
مشاهده: 736

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شناسه ملی سند علمی:

CFMA03_167

تاریخ نمایه سازی: 16 خرداد 1394

چکیده مقاله:

In this paper, we consider a stochastic portfolio optimization problem with default risk on an infinite time horizon. An investor dynamically chooses a consumption rate and allocates the wealth into the securities: a perpetual defaultable bond, a money market account with the constant return and a default-free risky asset. The goal is to choose the optimal investment to maximize the infinite horizon expected discounted power utility of the consumption policies (controls). The default risk premium and the default intensity are assumed to rely on a stochastic factor formulated by a diffusion process. We study the optimal allocation and consumption policies to maximize the infinite horizon expected discounted non-log HARA utility of the consumption, and we use the dynamic programming principle to derive the Hamilton–Jacobi–Bellman (HJB) equation. Then we explore the HJB equation by employing a so-called sub–super solution approach. The optimal allocation and consumption policies are obtained in terms of the classical solution to a PDE. Finally, we get an explicit formula for the optimal control strategy. In this article The soloutions are then used in portfolio management subject to default risk and derive the optimal investment and consumption policies.

نویسندگان

M Mazidi

Faculty of Mathematics, Yazd University, yazd, Iran

A Delavarkhalafi

Faculty of Mathematics, Yazd University, yazd, Iran

A Mokhtari

Faculty of Mathematics, Yazd University, yazd, Iran

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  • I. Jang, Portfolio optimization with defaultable securities, Ph.D. Thesis, The ...
  • T. Pang, Stochastic control theory and its applications to financial ...
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