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Contribution Details

Type Working Paper
Scope Contributions to practice
Title The finite-time horizon/Stochastic interest rate - Jeanblanc-Shiryaev model
Organization Unit
  • Andrea Barth
  • Santiago Moreno-Bromberg
  • Oleg Reichmann
  • English
Institution University of Zurich
Series Name NCCR FINRISK Working Paper Series
Number 859
Date 2013
Abstract Text In this paper the optimal consumption strategy of an investor who owns a fixed sized risky project is studied. The cash flows generated by the risky project follow an arithmetic Brownian motion, and the investor earns interest on cash reserves. The short-rate may be stochastic, and the time horizon may be finite. This results in a family of Hamilton-Jacobi-Bellman variational inequalities that include PDEs whose solutions must be approximated numerically. To do so an finite element approximation and a time marching scheme are employed.
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