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September 2012 Optimal stopping problems for asset management
Savas Dayanik, Masahiko Egami
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Adv. in Appl. Probab. 44(3): 655-677 (September 2012). DOI: 10.1239/aap/1346955259


An asset manager invests the savings of some investors in a portfolio of defaultable bonds. The manager pays the investors coupons at a constant rate and receives a management fee proportional to the value of the portfolio. He/she also has the right to walk out of the contract at any time with the net terminal value of the portfolio after payment of the investors' initial funds, and is not responsible for any deficit. To control the principal losses, investors may buy from the manager a limited protection which terminates the agreement as soon as the value of the portfolio drops below a predetermined threshold. We assume that the value of the portfolio is a jump diffusion process and find an optimal termination rule of the manager with and without protection. We also derive the indifference price of a limited protection. We illustrate the solution method on a numerical example. The motivation comes from the collateralized debt obligations.


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Savas Dayanik. Masahiko Egami. "Optimal stopping problems for asset management." Adv. in Appl. Probab. 44 (3) 655 - 677, September 2012.


Published: September 2012
First available in Project Euclid: 6 September 2012

zbMATH: 1262.91123
MathSciNet: MR3024604
Digital Object Identifier: 10.1239/aap/1346955259

Primary: 60G40
Secondary: 60J60 , 60J70 , 60J75

Keywords: asset management , jump diffusion , Optimal stopping

Rights: Copyright © 2012 Applied Probability Trust


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Vol.44 • No. 3 • September 2012
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