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Optimal Portfolio Selection for Containing Credit Risk Assets

Author: ZhangLin
Tutor: GuoWenZuo
School: Nanjing University of Finance and Economics
Course: Finance
Keywords: Credit risk asset diffusion process jump-diffusion process HJB equation efficient frontier
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 70
Quote: 0
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Optimal portfolio selection is important for financial economics, especially in the field of asset pricing research. Dynamic portfolio selection decisions refer to that the investor will adjust the optimal decision and do the best decision-making corresponding to the actual situation. Dynamic portfolio selection decisions reflect the dynamic behavior of the asset prices, the characteristics of the securities market and the investors’decision-making process.In the current market, more and more high yield corporate bonds gradually attract investors. Relative to the portfolio composed of stock and risk-free bonds, investors prefer to portfolio consisted of stocks and credit risk bonds, which can provide different returns, in order to pursue higher returns. Although the credit risk bonds are less, they still appear in the real market. These corporate bonds are called credit risk bonds in this paper.In this paper, the problem of credit assets portfolio selection under a diffusion credit risk model and jump-diffusion credit risk model which is considered. Different from the previous portfolio selection problem, which is used the portfolio consisting in a risk-free bond and stocks, in this paper we consider the portfolio, which is made up of a credit bond and a stock, as the research starting point. The portfolio selection problem will be studied respectively in the diffusion market and in the jump-diffusion market.The optimal investment strategy under the mean-variance principle is studied by the stochastic control approach. The closed and explicit formulas for the optimal investment strategy and the efficient frontier are derived, so that the investors can subject to the minimum risk under expect terminal wealth. Finally, the numerical example analyses the effect to optimal investment strategy of default intensity, the expected rate of return and the wealth target.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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