Management Science and Financial Engineering

  • 제22권1호
  • /
  • Pages.13-20
  • /
  • 2016
  • /
  • 2287-2043(pISSN)
  • /
  • 2287-2361(eISSN)
한국경영과학회 (The Korean Operations Research and Management Science Society)
권호 표지
DOI QR코드

DOI QR Code

Optimal Bankruptcy with a Continuous Debt Repayment

  • Lim, Byung Hwa (Department of Economics and Finance, The University of Suwon)
  • 투고 : 2016.04.06
  • 심사 : 2016.05.23
  • 발행 : 2016.05.31
PDF 다운로드
⟨ 이전 논문 다음 논문 ⟩

초록

We investigate the optimal consumption and investment problem when a working debtor has an option to file for bankruptcy. By applying the duality approach, the closed-form solutions are obtained for the case of CRRA utility function. The optimal bankruptcy time is determined by the first hitting time when the financial wealth hits the wealth threshold derived from the optimal stopping time problem. Moreover, the numerical results show that the investment increases as the wealth approaches the threshold and the value gain from the bankruptcy option is vanished as wealth increases.

키워드

과제정보

연구 과제 주관 기관 : National Research Foundation of Korea

참고문헌

  1. Borgo, M. D., "Does Bankruptcy Protection Affect Risk-Taking in Household Portfolio?," Working Paper 2015.
  2. Choi, K. J., H. K. Koo, B. H. Lim, and J. Yoo, "Endogenous credit constraints and household portfolio choices," Working Paper 2015.
  3. Dybvig, P. and H. Liu, "Lifetime consumption and investment: retirement and constrained borrowing," Journal of Economic Theory 145 (2010), 885-907. https://doi.org/10.1016/j.jet.2009.08.003
  4. Jeanblanc, M., P. Lakner, and A. Kadam, "Optimal bankruptcy time and consumption/investment policies on an infinite horizon with a continuous debt repayment until bankruptcy," Mathematics of Operations Research 29 (2004), 649-671. https://doi.org/10.1287/moor.1030.0084
  5. Karatzas, I., J. P. Lehoczky, S. P. Sethi, S.E. Shreve, "Explicit solution of a general consumption/investment problem," Mathematics of Operations Research 11 (1987), 261-294.
  6. Karatzas, I. and H. Wang, "Utility maximization with discretionary stopping," SIAM J. Control Optim. L, 39 (2000), 306-329. https://doi.org/10.1137/S0363012998346323
  7. Livshits, I., "Recent Developments in Consumer Credit and Default Literature," Journal of Economic Surveys 29 (2015), 594-613. https://doi.org/10.1111/joes.12119
  8. Merton, R. C., "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Journal of Economic Theory 3 (1971), 373-413. https://doi.org/10.1016/0022-0531(71)90038-X
  9. Sethi, S. P., "Optimal consumption-investment decisions allowing for bankruptcy: a survey," Worldwide Asset and Liability Modeling, William T. Ziemba and John M. Mulvey (Editors), Cambridge University Press, Cambridge, U. K. (1998), 397-426.