Markov decision process algorithms for wealth allocation problems with defaultable bonds

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Pérez López, Iker, Hodge, David and Le, Huiling (2016) Markov decision process algorithms for wealth allocation problems with defaultable bonds. Advances in Applied Probability, 48 (2). pp. 392-405. ISSN 1475-6064

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Abstract

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.

Item Type: Article
Additional Information: © Cambridge University Press 2016
Keywords: Portfolio Optimization; Defaultable Bonds; Markov Decision Processes
Schools/Departments: University of Nottingham, UK > Faculty of Science > School of Mathematical Sciences
Identification Number: https://doi.org/10.1017/apr.2016.6
Depositing User: Hodge, David
Date Deposited: 10 Dec 2015 09:06
Last Modified: 16 Oct 2017 17:02
URI: https://eprints.nottingham.ac.uk/id/eprint/31020

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