CPDO with finite termination: maximal return under cash-in and cash-out conditions

Xiaoli Yang, Jin Liang, Yuan Wu

Abstract


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.

doi:10.1017/S1446181115000449

Keywords


CPDO; HJB equation; cash-in; cash-out; optimal leverage



DOI: http://dx.doi.org/10.21914/anziamj.v57i0.8911



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ANZIAM Journal, ISSN 1446-8735, copyright Australian Mathematical Society.