We develop a fixed income portfolio framework capturing the exponential decay of contagious intensities between successive default events. We show that the value function of the control problem is the classical solution to a recursive system of second-order uniformly parabolic...

We consider the optimal portfolio problem of a power investor who wishes to allocate her wealth between several credit default swaps (CDSs) and a money market account. We model contagion risk among the reference entities in the portfolio using a reduced form Markovian model with interacting...

We study price linkages between assets held by financial institutions that maintain fixed capital structures over time. We consider a market consisting of a banking and nonbanking sector. Firms in the banking sector actively manage their leverage ratios to conform with pre-specified target...