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Optimal Investment and Consumption with Default Risk: HARA Utility |
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| Authors: | Lijun Bo Xindan Li Yongjin Wang Xuewei Yang |
| Affiliation: | 1. Department of Mathematics, Xidian University, Xi’an, 710071, China 2. School of Management and Engineering, Nanjing University, Nanjing, 210093, China 3. School of Business, Nankai University, Tianjin, 300071, China |
| Abstract: | In this paper, we consider a portfolio optimization problem in a defaultable market. The representative investor dynamically allocates his or her wealth among the following securities: a perpetual defaultable bond, a money market account and a default-free risky asset. The optimal investment and consumption policies that maximize the infinite horizon expected discounted HARA utility of the consumption are explicitly derived. Moreover, numerical illustrations are also presented. |
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