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Optimization problem under change of regime of interest rate

Author

Listed:
  • Bogdan Iftimie

    (IMAR)

  • Monique Jeanblanc
  • Thomas Lim

    (ENSIIE)

  • Hai-Nam Nguyen

Abstract

In this paper, we study the classical problem of maximization of the sum of the utility of the terminal wealth and the utility of the consumption, in a case where a sudden jump in the risk-free interest rate creates incompleteness. The value function of the dual problem is proved to be solution of a BSDE and the duality between the primal and the dual value functions is exploited to study the BSDE associated to the primal problem.

Suggested Citation

  • Bogdan Iftimie & Monique Jeanblanc & Thomas Lim & Hai-Nam Nguyen, 2013. "Optimization problem under change of regime of interest rate," Papers 1305.7309, arXiv.org.
    • Handle: RePEc:arx:papers:1305.7309
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    References listed on IDEAS

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    1. Ying Jiao & Huyên Pham, 2011. "Optimal investment with counterparty risk: a default-density model approach," Finance and Stochastics, Springer, vol. 15(4), pages 725-753, December.
    2. Cox, John C. & Huang, Chi-fu, 1989. "Optimal consumption and portfolio policies when asset prices follow a diffusion process," Journal of Economic Theory, Elsevier, vol. 49(1), pages 33-83, October.
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    Cited by:

    1. Ola Hammarlid & Marta Leniec, 2018. "Credit Value Adjustment for Counterparties with Illiquid CDS," Papers 1806.07667, arXiv.org.
    2. Monique Jeanblanc & Marta Leniec, 2015. "Role Of Information In Pricing Default-Sensitive Contingent Claims," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 18(01), pages 1-25.

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