Optimal Credit Investment with Borrowing Costs
We consider the portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous functio...
Ausführliche Beschreibung
Gespeichert in:
| Autor*in: |
Bo, Lijun [verfasserIn] |
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| Format: |
Artikel |
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| Sprache: |
Englisch |
| Erschienen: |
2017 |
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| Schlagwörter: |
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| Übergeordnetes Werk: |
Enthalten in: Mathematics of operations research - Catonsville, MD : INFORMS, 1976, 42(2017), 2, Seite 546-575 |
|---|---|
| Übergeordnetes Werk: |
volume:42 ; year:2017 ; number:2 ; pages:546-575 |
| Links: |
|---|
| DOI / URN: |
10.1287/moor.2016.0818 |
|---|
| Katalog-ID: |
OLC1992113858 |
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| 520 | |a We consider the portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous function of the admissible control, we characterize the optimal strategy in terms of a relation between a critical borrowing threshold and solutions of a system of first-order conditions. We analyze the nonlinear dynamic programming equation and prove the singular growth of its coefficients. Using a truncation technique relying on the locally Lipschitz continuity of the optimal strategy, we remove the singularity and show the existence and uniqueness of a global regular solution. Our explicit characterization of the strategy has direct financial implications: it indicates that the investor purchases a high number of bond shares when his borrowing costs are low and the bond sufficiently safe, and reduces the size of his long position or even sells short when his financing costs are high or the bond very risky. | ||
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10.1287/moor.2016.0818 doi PQ20170501 (DE-627)OLC1992113858 (DE-599)GBVOLC1992113858 (PRQ)c778-ef7cec1c45fc66e950a36399013f11b75e2137ab76a9f9490dcc14603e7d7a710 (KEY)0031447120170000042000200546optimalcreditinvestmentwithborrowingcosts DE-627 ger DE-627 rakwb eng 510 650 DE-600 85.03 bkl Bo, Lijun verfasserin aut Optimal Credit Investment with Borrowing Costs 2017 Text txt rdacontent ohne Hilfsmittel zu benutzen n rdamedia Band nc rdacarrier We consider the portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous function of the admissible control, we characterize the optimal strategy in terms of a relation between a critical borrowing threshold and solutions of a system of first-order conditions. We analyze the nonlinear dynamic programming equation and prove the singular growth of its coefficients. Using a truncation technique relying on the locally Lipschitz continuity of the optimal strategy, we remove the singularity and show the existence and uniqueness of a global regular solution. Our explicit characterization of the strategy has direct financial implications: it indicates that the investor purchases a high number of bond shares when his borrowing costs are low and the bond sufficiently safe, and reduces the size of his long position or even sells short when his financing costs are high or the bond very risky. dynamic programming equation borrowing costs portfolio decisions credit risk Capponi, Agostino oth Enthalten in Mathematics of operations research Catonsville, MD : INFORMS, 1976 42(2017), 2, Seite 546-575 (DE-627)129444391 (DE-600)195683-8 (DE-576)014812770 0364-765X nnns volume:42 year:2017 number:2 pages:546-575 http://dx.doi.org/10.1287/moor.2016.0818 Volltext GBV_USEFLAG_A SYSFLAG_A GBV_OLC SSG-OLC-MAT SSG-OLC-WIW SSG-OPC-MAT GBV_ILN_22 GBV_ILN_24 GBV_ILN_26 GBV_ILN_30 GBV_ILN_32 GBV_ILN_40 GBV_ILN_70 GBV_ILN_2006 GBV_ILN_2012 GBV_ILN_2027 GBV_ILN_2057 GBV_ILN_4266 GBV_ILN_4305 GBV_ILN_4310 GBV_ILN_4311 GBV_ILN_4315 GBV_ILN_4323 GBV_ILN_4700 85.03 AVZ AR 42 2017 2 546-575 |
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10.1287/moor.2016.0818 doi PQ20170501 (DE-627)OLC1992113858 (DE-599)GBVOLC1992113858 (PRQ)c778-ef7cec1c45fc66e950a36399013f11b75e2137ab76a9f9490dcc14603e7d7a710 (KEY)0031447120170000042000200546optimalcreditinvestmentwithborrowingcosts DE-627 ger DE-627 rakwb eng 510 650 DE-600 85.03 bkl Bo, Lijun verfasserin aut Optimal Credit Investment with Borrowing Costs 2017 Text txt rdacontent ohne Hilfsmittel zu benutzen n rdamedia Band nc rdacarrier We consider the portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous function of the admissible control, we characterize the optimal strategy in terms of a relation between a critical borrowing threshold and solutions of a system of first-order conditions. We analyze the nonlinear dynamic programming equation and prove the singular growth of its coefficients. Using a truncation technique relying on the locally Lipschitz continuity of the optimal strategy, we remove the singularity and show the existence and uniqueness of a global regular solution. Our explicit characterization of the strategy has direct financial implications: it indicates that the investor purchases a high number of bond shares when his borrowing costs are low and the bond sufficiently safe, and reduces the size of his long position or even sells short when his financing costs are high or the bond very risky. dynamic programming equation borrowing costs portfolio decisions credit risk Capponi, Agostino oth Enthalten in Mathematics of operations research Catonsville, MD : INFORMS, 1976 42(2017), 2, Seite 546-575 (DE-627)129444391 (DE-600)195683-8 (DE-576)014812770 0364-765X nnns volume:42 year:2017 number:2 pages:546-575 http://dx.doi.org/10.1287/moor.2016.0818 Volltext GBV_USEFLAG_A SYSFLAG_A GBV_OLC SSG-OLC-MAT SSG-OLC-WIW SSG-OPC-MAT GBV_ILN_22 GBV_ILN_24 GBV_ILN_26 GBV_ILN_30 GBV_ILN_32 GBV_ILN_40 GBV_ILN_70 GBV_ILN_2006 GBV_ILN_2012 GBV_ILN_2027 GBV_ILN_2057 GBV_ILN_4266 GBV_ILN_4305 GBV_ILN_4310 GBV_ILN_4311 GBV_ILN_4315 GBV_ILN_4323 GBV_ILN_4700 85.03 AVZ AR 42 2017 2 546-575 |
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10.1287/moor.2016.0818 doi PQ20170501 (DE-627)OLC1992113858 (DE-599)GBVOLC1992113858 (PRQ)c778-ef7cec1c45fc66e950a36399013f11b75e2137ab76a9f9490dcc14603e7d7a710 (KEY)0031447120170000042000200546optimalcreditinvestmentwithborrowingcosts DE-627 ger DE-627 rakwb eng 510 650 DE-600 85.03 bkl Bo, Lijun verfasserin aut Optimal Credit Investment with Borrowing Costs 2017 Text txt rdacontent ohne Hilfsmittel zu benutzen n rdamedia Band nc rdacarrier We consider the portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous function of the admissible control, we characterize the optimal strategy in terms of a relation between a critical borrowing threshold and solutions of a system of first-order conditions. We analyze the nonlinear dynamic programming equation and prove the singular growth of its coefficients. Using a truncation technique relying on the locally Lipschitz continuity of the optimal strategy, we remove the singularity and show the existence and uniqueness of a global regular solution. Our explicit characterization of the strategy has direct financial implications: it indicates that the investor purchases a high number of bond shares when his borrowing costs are low and the bond sufficiently safe, and reduces the size of his long position or even sells short when his financing costs are high or the bond very risky. dynamic programming equation borrowing costs portfolio decisions credit risk Capponi, Agostino oth Enthalten in Mathematics of operations research Catonsville, MD : INFORMS, 1976 42(2017), 2, Seite 546-575 (DE-627)129444391 (DE-600)195683-8 (DE-576)014812770 0364-765X nnns volume:42 year:2017 number:2 pages:546-575 http://dx.doi.org/10.1287/moor.2016.0818 Volltext GBV_USEFLAG_A SYSFLAG_A GBV_OLC SSG-OLC-MAT SSG-OLC-WIW SSG-OPC-MAT GBV_ILN_22 GBV_ILN_24 GBV_ILN_26 GBV_ILN_30 GBV_ILN_32 GBV_ILN_40 GBV_ILN_70 GBV_ILN_2006 GBV_ILN_2012 GBV_ILN_2027 GBV_ILN_2057 GBV_ILN_4266 GBV_ILN_4305 GBV_ILN_4310 GBV_ILN_4311 GBV_ILN_4315 GBV_ILN_4323 GBV_ILN_4700 85.03 AVZ AR 42 2017 2 546-575 |
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10.1287/moor.2016.0818 doi PQ20170501 (DE-627)OLC1992113858 (DE-599)GBVOLC1992113858 (PRQ)c778-ef7cec1c45fc66e950a36399013f11b75e2137ab76a9f9490dcc14603e7d7a710 (KEY)0031447120170000042000200546optimalcreditinvestmentwithborrowingcosts DE-627 ger DE-627 rakwb eng 510 650 DE-600 85.03 bkl Bo, Lijun verfasserin aut Optimal Credit Investment with Borrowing Costs 2017 Text txt rdacontent ohne Hilfsmittel zu benutzen n rdamedia Band nc rdacarrier We consider the portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous function of the admissible control, we characterize the optimal strategy in terms of a relation between a critical borrowing threshold and solutions of a system of first-order conditions. We analyze the nonlinear dynamic programming equation and prove the singular growth of its coefficients. Using a truncation technique relying on the locally Lipschitz continuity of the optimal strategy, we remove the singularity and show the existence and uniqueness of a global regular solution. Our explicit characterization of the strategy has direct financial implications: it indicates that the investor purchases a high number of bond shares when his borrowing costs are low and the bond sufficiently safe, and reduces the size of his long position or even sells short when his financing costs are high or the bond very risky. dynamic programming equation borrowing costs portfolio decisions credit risk Capponi, Agostino oth Enthalten in Mathematics of operations research Catonsville, MD : INFORMS, 1976 42(2017), 2, Seite 546-575 (DE-627)129444391 (DE-600)195683-8 (DE-576)014812770 0364-765X nnns volume:42 year:2017 number:2 pages:546-575 http://dx.doi.org/10.1287/moor.2016.0818 Volltext GBV_USEFLAG_A SYSFLAG_A GBV_OLC SSG-OLC-MAT SSG-OLC-WIW SSG-OPC-MAT GBV_ILN_22 GBV_ILN_24 GBV_ILN_26 GBV_ILN_30 GBV_ILN_32 GBV_ILN_40 GBV_ILN_70 GBV_ILN_2006 GBV_ILN_2012 GBV_ILN_2027 GBV_ILN_2057 GBV_ILN_4266 GBV_ILN_4305 GBV_ILN_4310 GBV_ILN_4311 GBV_ILN_4315 GBV_ILN_4323 GBV_ILN_4700 85.03 AVZ AR 42 2017 2 546-575 |
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10.1287/moor.2016.0818 doi PQ20170501 (DE-627)OLC1992113858 (DE-599)GBVOLC1992113858 (PRQ)c778-ef7cec1c45fc66e950a36399013f11b75e2137ab76a9f9490dcc14603e7d7a710 (KEY)0031447120170000042000200546optimalcreditinvestmentwithborrowingcosts DE-627 ger DE-627 rakwb eng 510 650 DE-600 85.03 bkl Bo, Lijun verfasserin aut Optimal Credit Investment with Borrowing Costs 2017 Text txt rdacontent ohne Hilfsmittel zu benutzen n rdamedia Band nc rdacarrier We consider the portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous function of the admissible control, we characterize the optimal strategy in terms of a relation between a critical borrowing threshold and solutions of a system of first-order conditions. We analyze the nonlinear dynamic programming equation and prove the singular growth of its coefficients. Using a truncation technique relying on the locally Lipschitz continuity of the optimal strategy, we remove the singularity and show the existence and uniqueness of a global regular solution. Our explicit characterization of the strategy has direct financial implications: it indicates that the investor purchases a high number of bond shares when his borrowing costs are low and the bond sufficiently safe, and reduces the size of his long position or even sells short when his financing costs are high or the bond very risky. dynamic programming equation borrowing costs portfolio decisions credit risk Capponi, Agostino oth Enthalten in Mathematics of operations research Catonsville, MD : INFORMS, 1976 42(2017), 2, Seite 546-575 (DE-627)129444391 (DE-600)195683-8 (DE-576)014812770 0364-765X nnns volume:42 year:2017 number:2 pages:546-575 http://dx.doi.org/10.1287/moor.2016.0818 Volltext GBV_USEFLAG_A SYSFLAG_A GBV_OLC SSG-OLC-MAT SSG-OLC-WIW SSG-OPC-MAT GBV_ILN_22 GBV_ILN_24 GBV_ILN_26 GBV_ILN_30 GBV_ILN_32 GBV_ILN_40 GBV_ILN_70 GBV_ILN_2006 GBV_ILN_2012 GBV_ILN_2027 GBV_ILN_2057 GBV_ILN_4266 GBV_ILN_4305 GBV_ILN_4310 GBV_ILN_4311 GBV_ILN_4315 GBV_ILN_4323 GBV_ILN_4700 85.03 AVZ AR 42 2017 2 546-575 |
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Bo, Lijun |
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Optimal Credit Investment with Borrowing Costs |
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Optimal Credit Investment with Borrowing Costs |
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optimal credit investment with borrowing costs |
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Optimal Credit Investment with Borrowing Costs |
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We consider the portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous function of the admissible control, we characterize the optimal strategy in terms of a relation between a critical borrowing threshold and solutions of a system of first-order conditions. We analyze the nonlinear dynamic programming equation and prove the singular growth of its coefficients. Using a truncation technique relying on the locally Lipschitz continuity of the optimal strategy, we remove the singularity and show the existence and uniqueness of a global regular solution. Our explicit characterization of the strategy has direct financial implications: it indicates that the investor purchases a high number of bond shares when his borrowing costs are low and the bond sufficiently safe, and reduces the size of his long position or even sells short when his financing costs are high or the bond very risky. |
| abstractGer |
We consider the portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous function of the admissible control, we characterize the optimal strategy in terms of a relation between a critical borrowing threshold and solutions of a system of first-order conditions. We analyze the nonlinear dynamic programming equation and prove the singular growth of its coefficients. Using a truncation technique relying on the locally Lipschitz continuity of the optimal strategy, we remove the singularity and show the existence and uniqueness of a global regular solution. Our explicit characterization of the strategy has direct financial implications: it indicates that the investor purchases a high number of bond shares when his borrowing costs are low and the bond sufficiently safe, and reduces the size of his long position or even sells short when his financing costs are high or the bond very risky. |
| abstract_unstemmed |
We consider the portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous function of the admissible control, we characterize the optimal strategy in terms of a relation between a critical borrowing threshold and solutions of a system of first-order conditions. We analyze the nonlinear dynamic programming equation and prove the singular growth of its coefficients. Using a truncation technique relying on the locally Lipschitz continuity of the optimal strategy, we remove the singularity and show the existence and uniqueness of a global regular solution. Our explicit characterization of the strategy has direct financial implications: it indicates that the investor purchases a high number of bond shares when his borrowing costs are low and the bond sufficiently safe, and reduces the size of his long position or even sells short when his financing costs are high or the bond very risky. |
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Optimal Credit Investment with Borrowing Costs |
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