We develop a micro based macro model for residential home prices in an economy where defaults on residential mortgages negatively affect housing prices. Our model enables us to study the impact of subprime defaults on prime borrowers and the impact of various government policies on the housing...

We develop a dynamic simulation model for residential home prices in an economy where defaults on residential mortgages negatively affect housing prices and aggregate income. This simulation model enables us to study the impact of subprime defaults on prime borrowers and the impact of various...

In this paper, we analyze the impact of default risk on the portfolio decision of an investor wishing to invest in corporate bonds. Default risk is modeled via a reduced form approach and we allow for random recovery as well as joint default events. Depending on the structure of the model, we...

The continuous-time portfolio problem consists of finding the optimal investment strategy of an investor. In the classical Merton problem the investor can allocate his funds to a riskless savings account and risky assets. However, to get explicit results, it is assumed that the interest rates...

The aim of this paper is to provide a survey of some of the problems occurring in portfolio problems with power utility, Non-Gaussian interest rates, and/or unbounded market price of risk. Using stochastic control theory, we solve several portfolio problems for different specifications of the...