Dynamic portfolio optimization with looping contagion risk

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Title: Dynamic portfolio optimization with looping contagion risk
Authors: Jia, L
Pistorius, M
Zheng, H
Item 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 of Acceptance: 28-Nov-2018
URI: http://hdl.handle.net/10044/1/66582
ISSN: 1945-497X
Publisher: Society for Industrial and Applied Mathematics
Journal / Book Title: SIAM Journal on Financial Mathematics
Copyright Statement: This paper is embargoed until publication.
Keywords: 0102 Applied Mathematics
Publication Status: Accepted
Embargo Date: publication subject to indefinite embargo
Appears in Collections:Financial Mathematics
Mathematics
Faculty of Natural Sciences



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