optimal credit portfolio and consumption with regime switching and default contagion

Fei Sun, Wenyuan Wang and Kaixin Yan

Papers from arXiv.org

Abstract: We study optimal portfolio and consumption in a regime-switching multi-name credit market with default contagion. Defaults generate portfolio losses and alter the intensities of surviving securities. Under Cobb--Douglas utility, homogeneity reduces the HJB equation to a recursive ODE system indexed by the default states. Solving it backward from the all-default state, we establish existence and uniqueness of positive classical solutions, characterize the optimal feedback controls, and prove a verification theorem.

Date: 2026-07
References: Add references at CitEc
Citations:

Downloads: (external link)
https://arxiv.org/pdf/2607.10542 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2607.10542

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().