Optimization problem under change of regime of interest rate

DOI10.1142/S0219493716500155MaRDI QIDQ2816571zbMATH OpenOpenAlexFDO

Authors Bogdan Iftimie, Thomas Lim, Monique Jeanblanc

Publication date 23 August 2016

Published in Stochastics and Dynamics (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1305.7309

zbMATH Keywords

backward stochastic differential equations (BSDEs)dual problemenlarged filtrationportfolio optimizationpower utilitystochastic interest rate

Mathematics Subject Classification ID

Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Optimality conditions and duality in mathematical programming (90C46) Utility theory (91B16) Portfolio theory (91G10) Interest rates, asset pricing, etc. (stochastic models) (91G30) Optimal stochastic control (93E20)

Abstract: In this paper, we study the classical problem of maximization of the sum of the utility of the terminal wealth and the utility of the consumption, in a case where a sudden jump in the risk-free interest rate creates incompleteness. The value function of the dual problem is proved to be solution of a BSDE and the duality between the primal and the dual value functions is exploited to study the BSDE associated to the primal problem.

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Cites work

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• Optimal Portfolio and Consumption Decisions for a “Small Investor” on a Finite Horizon
• Semi-martingales et grossissement d'une filtration
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Cited in

(2)

• Portfolio Choice with Market--Credit-Risk Dependencies
• A robust investment-consumption optimization problem in a switching regime interest rate setting

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