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CPDO WITH FINITE TERMINATION: MAXIMAL RETURN UNDER CASH-IN AND CASH-OUT CONDITIONS
Part of:
Partial differential equations, boundary value problems
Hamilton-Jacobi theories, including dynamic programming
Mathematical finance
Published online by Cambridge University Press: 10 February 2016
Abstract
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The maximal return and optimal leverage of a constant proportion debt obligation with finite termination and two boundaries are analysed by numerically solving Hamilton–Jacobi–Bellman equations. We discuss the probabilities of the asset value reaching the upper or lower bound under the optimal control and the optimal control problem with a time-varying boundary. Furthermore, we also analyse the relationship between the optimal return, the optimal policy and different parameters.
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- © 2016 Australian Mathematical Society
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