OPTIMAL PORTFOLIOS WITH DEFAULTABLE SECURITIES A FIRM VALUE APPROACH

Ralf Korn () and Holger Kraft ()
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Ralf Korn: Department of Mathematics, University of Kaiserslautern, 67653 Kaiserslautern, Germany;
Holger Kraft: Fraunhofer ITWM, Institute for Industrial and Financial Mathematics, Department of Finance, Kaiserslautern, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 2003, vol. 06, issue 08, 793-819

Abstract: Credit risk is an important issue of current research in finance. While there is a lot of work on modeling credit risk, there is only a few works on continuous-time portfolio optimization with defaultable securities. In this paper we solve investment problems with defaultable bonds and stocks. We assume that credit risk is modeled by a firm value model.

Keywords: Optimal portfolios; credit risk; elasticity; duration; JEL classification code G11 (search for similar items in EconPapers)
Date: 2003
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Citations: View citations in EconPapers (9)

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DOI: 10.1142/S0219024903002213

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