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Information And Optimal Investment In Defaultable Assets

Author

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  • GIULIA DI NUNNO

    (Center of Mathematics for Applications, University of Oslo, P.O. Box 1053 Blindern, N-0316 Oslo, Norway;
    Norwegian School of Economics and Business Administration, Helleveien 30, N-5045 Bergen, Norway)

  • STEFFEN SJURSEN

    (Center of Mathematics for Applications, University of Oslo, P.O. Box 1053 Blindern, N-0316 Oslo, Norway)

Abstract

We study optimal investment in an asset subject to risk of default for investors that rely on different levels of information. The price dynamics can include noises both from a Wiener process and a Poisson random measure with infinite activity. The default events are modeled via a counting process in line with large part of the literature in credit risk. In order to deal with both cases of inside and partial information we consider the framework of the anticipating calculus of forward integration. This does not require a priori assumptions typical of the framework of enlargement of filtrations. We find necessary and sufficient conditions for the existence of a locally maximizing portfolio of the expected utility at terminal time. We consider a large class of utility functions. In addition we show that the existence of the solution implies the semi-martingale property of the noises driving the stock. Some discussion on unicity of the maxima is included.

Suggested Citation

  • Giulia Di Nunno & Steffen Sjursen, 2014. "Information And Optimal Investment In Defaultable Assets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 17(08), pages 1-27.
    • Handle: RePEc:wsi:ijtafx:v:17:y:2014:i:08:n:s0219024914500502
    DOI: 10.1142/S0219024914500502
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    References listed on IDEAS

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    1. Yuanfeng Hou & Xiangrong Jin, 2002. "Optimal Investment With Default Risk," FAME Research Paper Series rp46b, International Center for Financial Asset Management and Engineering.
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    Cited by:

    1. Salmerón Garrido, José Antonio & Nunno, Giulia Di & D'Auria, Bernardo, 2022. "Before and after default: information and optimal portfolio via anticipating calculus," DES - Working Papers. Statistics and Econometrics. WS 35411, Universidad Carlos III de Madrid. Departamento de Estadística.

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