Optimal Portfolios with Stochastic Interest Rates and Defaultable Assets

ISBN-13: 9783540212300 / Angielski / Miękka / 2004 / 188 str.

Holger Kraft

Opis

This thesis summarizes most of my recent research in the field of portfolio optimization. The main topics which I have addressed are portfolio problems with stochastic interest rates and portfolio problems with defaultable assets. The starting point for my research was the paper "A stochastic control ap proach to portfolio problems with stochastic interest rates" (jointly with Ralf Korn), in which we solved portfolio problems given a Vasicek term structure of the short rate. Having considered the Vasicek model, it was obvious that I should analyze portfolio problems where the interest rate dynamics are gov erned by other common short rate models. The relevant results are presented in Chapter 2. The second main issue concerns portfolio problems with default able assets modeled in a firm value framework. Since the assets of a firm then correspond to contingent claims on firm value, I searched for a way to easily deal with such claims in portfolio problems. For this reason, I developed the elasticity approach to portfolio optimization which is presented in Chapter 3. However, this way of tackling portfolio problems is not restricted to portfolio problems with default able assets only, but it provides a general framework allowing for a compact formulation of portfolio problems even if interest rates are stochastic."

Spis treści

1 Preliminaries from Stochastics.- 1.1 Stochastic Differential Equations.- 1.2 Stochastic Optimal Control.- 2 Optimal Portfolios with Stochastic Interest Rates.- 2.1 Introduction.- 2.2 Ho-Lee and Vasicek Model.- 2.2.1 Bond Portfolio Problem.- 2.2.2 Mixed Stock and Bond Portfolio Problem.- 2.3 Dothan and Black-Karasinski Model.- 2.4 Cox-Ingersoll-Ross Model.- 2.5 Widening the Investment Universe.- 2.6 Conclusion.- 3 Elasticity Approach to Portfolio Optimization.- 3.1 Introduction.- 3.2 Elasticity in Portfolio Optimization.- 3.3 Duration in Portfolio Optimization.- 3.4 Conclusion.- 3.5 Appendix.- 4 Barrier Derivatives with Curved Boundaries.- 4.1 Introduction.- 4.2 Bjork’s Result.- 4.3 Deterministic Exponential Boundaries.- 4.4 Discounted Barrier and Gaussian Interest Rates.- 4.5 Application: Pricing of Defaultable Bonds.- 4.6 Conclusion.- 5 Optimal Portfolios with Defaultable Assets — A Firm Value Approach.- 5.1 Introduction.- 5.2 The Unconstrained Case.- 5.2.1 Merton Model.- 5.2.2 On the Assumption that Firm Value is Tradable.- 5.2.3 Black-Cox Model.- 5.3 From the Unconstrained to the Constrained Case.- 5.4 The Constrained Case.- 5.4.1 Merton Model.- 5.4.2 Black-Cox Model.- 5.4.3 Generalized Briys-de Varenne Model.- 5.5 Conclusion.- References.- Abbreviations.- Notations.