On Portfolio Separation in the Merton Problem with Bankruptcy or Default

Nils Chr. Framstad ()

A chapter in Proceedings of the International Conference on Stochastic Analysis and Applications, 2004, pp 249-265 from Springer

Abstract: Abstract When portfolio choice in discontinuous asset price models is considered, the possibility of a jump to 0 is often overlooked. We solve the Merton problem for a (modified) HARA agent in a generalized geometric Lévy market where the market coefficients can change simultaneously with the jumps in the prices. We show that two fund separation does only to some extent carry over, as agents with same exponent and different intertemporal trade-offs may no longer have the same mutual fund in the presence of such possible changes.

Keywords: Merton problem; bankruptcy and default; geometric Lévy motion; portfolio separation; incomplete markets.; Mathematics Subject Classification (2000):; 91B28; 60G51; 93E20.; JEL classisfication:; G11; D81; D52 (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-1-4020-2468-9_16

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DOI: 10.1007/978-1-4020-2468-9_16

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