|
Activity Number:
|
472
|
|
Type:
|
Contributed
|
|
Date/Time:
|
Wednesday, August 1, 2007 : 2:00 PM to 3:50 PM
|
|
Sponsor:
|
Business and Economics Statistics Section
|
| Abstract - #309152 |
|
Title:
|
Optimal Investment in a Defaultable Bond
|
|
Author(s):
|
Weijian Liang*+ and Peter Lakner
|
|
Companies:
|
New York University and New York University
|
|
Address:
|
44 West 4th St, New York, NY, 10012,
|
|
Keywords:
|
Corporate Bond ; Default Risk ; Utility Maximization ; Optimal Investment
|
|
Abstract:
|
The present paper analyzes the optimal investment strategy in a defaultable (corporate) bond and a money market account in a continuous time model. The treatment of information on the firm's asset value is based on an approach unifying the structural model and the reduced-form model. Specifically, the asset value will be assumed to be observable only at finitely many time points before the maturity of the bond. The optimal investment process will be worked out first for a small time-horizon with a general risk-averse utility function, then a multi-period optimal strategy with logarithmic and power utility will be presented using backward induction. The optimal investment strategy is analyzed numerically for the logarithmic utility.
|
