Portfolio optimization under credit risk (Q1424641)
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scientific article; zbMATH DE number 2058966
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| English | Portfolio optimization under credit risk |
scientific article; zbMATH DE number 2058966 |
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Portfolio optimization under credit risk (English)
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16 March 2004
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A financial market model is considered which describes the dynamics of the non-defaultable short rate (\(r\)), the defaultable short rate (\(s\)) and the uncertainty index (\(u\)). Stochastic differential equations by a standard Brownian motion are used to describe \((r(t),s(t),u(t))\). The prices of non-defaultable and defaultable discount bonds are evaluated. The problem of portfolio optimization in this model is reduced to a linear mixed-integer programming problem. An application to the portfolio of German, Italy and Greece sovereign bonds is discussed.
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uncertainty index
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linear mixed-integer programming
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defaultable bond price
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0.8198636174201965
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0.7989436388015747
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0.7918651103973389
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0.7884311676025391
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