School Seminars and Colloquia

An optimal portfolio problem with Default Risk

Stochastic Processes and Financial Mathematics

by Lijun Bo


Institution: Xi'an Electronic and Science University, Department of Math.
Date: Thu 6th August 2009
Time: 3:15 PM
Location: Old Geology Theatre 2, The University of Melbourne

Abstract: In this talk, we investigate a stochastic portfolio optimization problem with default risk. The default risk premium and the default intensity corresponding to the perputally defaultable bond are assumed to rely on a stochastic factor governed by a diffusion process. We study the optimal allocation and consumption policies to maximize the expectation of the discounted non-log HARA utility of the consumption, and we use the dynamic programming principle to derive the Hamilton-Jacobi-Bellman (HJB) equation. We then explore the HJB equation by employing a so-called sub-super solution approach. The optimal allocation and consumption policies are finally presented in a verification theorem.

For More Information: contact: Prof Daniel Dufresne. email: dufresne@unimelb.edu.au OR Dr Aihua Xia. email xia@ms.unimelb.edu.au