Markov decision process algorithms for wealth allocation problems with defaultable bonds
This paper is concerned with analysing optimal wealth allocation techniques within a defaultable financial market similar to Bielecki and Jang (2007). It studies a portfolio optimization problem combining a continuous-time jump market and a defaultable security; and presents numerical solutions thro...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Applied Probability Trust
2016
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| Subjects: | |
| Online Access: | https://eprints.nottingham.ac.uk/31020/ |
| Summary: | This paper is concerned with analysing optimal wealth allocation techniques within a defaultable financial market similar to Bielecki and Jang (2007). It studies a portfolio optimization problem combining a continuous-time jump market and a defaultable security; and presents numerical solutions through the conversion into a Markov decision process and characterization of its value function as a unique fixed point to a contracting operator. This work analyses allocation strategies under several families of utilities functions, and highlights significant portfolio selection differences with previously reported results. |
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