We study the cost of shocks, i.e., jump risk, with respect to reserve management when the reserve process is formulated as a drift switching jump-diffusion with a reflecting barrier at 0. Inspired by the Brownian drift switching model, our model results in a more realistic dynamic behavior of...

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...

We introduce a dynamic credit portfolio framework where optimal investment strategies are robust against misspecifications of the reference credit model. The risk-averse investor models his fear of credit risk misspecification by considering a set of plausible alternatives whose expected log...

We consider an optimal risk-sensitive portfolio allocation problem accounting for the possibility of cascading defaults. Default events have an impact on the distress state of the surviving stocks in the portfolio. We study the recursive system of non-Lipschitz quasi-linear parabolic HJB-PDEs...

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 portfolio decision problem of a risky investor. The investor borrows at a rate higher than his lending rate, and invests in a risky bond whose market price is correlated with the credit quality of the investor. By viewing the concave drift of the wealth process as a continuous...

We obtain an explicit formula for the bilateral counterparty valuation adjustment of a credit default swaps portfolio referencing an asymptotically large number of entities.We perform the analysis under a doubly stochastic intensity framework, allowing for default correlation through a common...