Dynamic portfolio optimization with looping contagion risk
File(s)
Accepted version
Author(s)
Jia, longjie
Pistorius, martijn
Zheng, Harry
Type
Journal Article
Abstract
In this paper we consider a utility maximization problem with defaultable stocks and looping contagion risk.We assume that the default intensity of one company depends on the stock prices of itself and other companies,and the default of the company induces immediate drops in the stock prices of the surviving companies. Weprove that the value function is the unique viscosity solution of the HJB equation. We also perform somenumerical tests to compare and analyse the statistical distributions of the terminal wealth of log utility andpower utility based on two strategies, one using the full information of intensity process and the other a proxyconstant intensity process.
Date Issued
2019-01-15
Date Acceptance
2018-11-28
Citation
SIAM Journal on Financial Mathematics, 2019, 10 (1), pp.1-36
ISSN
1945-497X
Publisher
Society for Industrial and Applied Mathematics
Start Page
1
End Page
36
Journal / Book Title
SIAM Journal on Financial Mathematics
Volume
10
Issue
1
Copyright Statement
© 2019, Society for Industrial and Applied Mathematics
Identifier
https://epubs.siam.org/doi/abs/10.1137/17M1154424
Subjects
0102 Applied Mathematics
0104 Statistics
1502 Banking, Finance and Investment
Publication Status
Published
Date Publish Online
2019-01-15