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# Portfolio problems stopping at first hitting time with application to default risk

@article{Kraft2006PortfolioPS, title={Portfolio problems stopping at first hitting time with application to default risk}, author={Holger Kraft and Mogens Steffensen}, journal={Math. Meth. of OR}, year={2006}, volume={63}, pages={123-150} }

- Published 2006 in Math. Meth. of OR
DOI:10.1007/s00186-005-0026-4

In this paper a portfolio problem is considered where trading in the risky asset is stopped if a state process hits a predefined barrier. This state process need not to be perfectly correlated with the risky asset. We give a representation result for the value function and provide a verification theorem. As an application, we explicitly solve the problem by assuming that the state process is an arithmetic Brownian motion. Then the result is used as a starting point to solve and analyze a… CONTINUE READING

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