Optimal Feedback Control of Stock Prices Under Credit Risk Dynamics

Mitra, S., Jinghai Shao and Karathanasopoulos, Andreas 2022. Optimal Feedback Control of Stock Prices Under Credit Risk Dynamics. Annals of Operations Research. 313, pp. 1285-1318. https://doi.org/10.1007/s10479-021-04002-6

TitleOptimal Feedback Control of Stock Prices Under Credit Risk Dynamics
TypeJournal article
AuthorsMitra, S., Jinghai Shao and Karathanasopoulos, Andreas
Abstract

In this paper we provide a stock price model that explicitly incorporates credit risk, under a stochastic optimal control system. The stock price model also incorporates the managerial control of credit risk through a control policy in the stochastic system. We provide explicit conditions on the existence of optimal feedback controls for the stock price model with credit risk. We prove the continuity of the value function, and then prove the dynamic programming principle for our system. Finally, we prove the Viscosity Solution of the Hamilton–Jacobi–Bellman equation. This paper is particularly relevant to industry, as the impact of credit risk upon stock prices has been prominent since the commencement of the Global Financial Crisis.

KeywordsCredit risk, Stock price model, Optimal control, Regime switching, Financial crisis
JournalAnnals of Operations Research
Journal citation313, pp. 1285-1318
ISSN0254-5330
1572-9338
Year2022
PublisherSpringer
Accepted author manuscript
License
CC BY 4.0
File Access Level
Open (open metadata and files)
Publisher's version
License
CC BY 4.0
File Access Level
Open (open metadata and files)
Digital Object Identifier (DOI)https://doi.org/10.1007/s10479-021-04002-6
Web address (URL)https://link.springer.com/article/10.1007/s10479-021-04002-6
Publication dates
Published17 Mar 2021
Published in print2022
Supplemental file
License
CC BY 4.0
File Access Level
Open (open metadata and files)

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