Risk-Sensitive Asset Management and Cascading Defaults

• 成果类型: Article
• 署名作者: Birge, John R.; Bo, Lijun; Capponi, Agostino
• 署名单位: University of Chicago; Chinese Academy of Sciences; University of Science & Technology of China, CAS; Chinese Academy of Sciences; Columbia University
• 刊物名称: MATHEMATICS OF OPERATIONS RESEARCH
• ISSN/ISSBN: 0364-765X
• DOI: 10.1287/moor.2017.0856
• 发表日期: 2018
• 页码: 1-28
• 关键词: infinite time horizon; stochastic volatilities; Portfolio optimization; differential-games; Optimal investment; Robust Estimation; smooth solutions; COMMITMENT; MODEL

摘要

We consider an optimal risk-sensitive portfolio allocation problem accounting for the possibility of cascading defaults. Default events have an impact on the distress state of the surviving stocks in the portfolio. We study the recursive system of non-Lipschitz quasilinear parabolic HJB-PDEs associated with the value function of the control problem in the different default states of the economy. We show the existence of a classical solution to this system via super-sub solution techniques and give an explicit characterization of the optimal feedback strategy in terms of the value function. We prove a verification theorem establishing the uniqueness of the solution. A numerical analysis indicates that the investor significantly accounts for contagion effects when making investment decisions, and that his strategy depends nonmonotonically on the aggregate risk level.