Optimal Investment and Consumption with Default Risk: HARA Utility

Lijun Bo, Xindan Li, Yongjin Wang and Xuewei Yang ()

Asia-Pacific Financial Markets, 2013, vol. 20, issue 3, 281 pages

Abstract: In this paper, we consider a portfolio optimization problem in a defaultable market. The representative investor dynamically allocates his or her wealth among the following securities: a perpetual defaultable bond, a money market account and a default-free risky asset. The optimal investment and consumption policies that maximize the infinite horizon expected discounted HARA utility of the consumption are explicitly derived. Moreover, numerical illustrations are also presented. Copyright Springer Science+Business Media New York 2013

Keywords: Optimal control; Portfolio optimization; Perpetual bond; Defaultable market; HJB equation (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/s10690-013-9167-2

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