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We have decided to discontinue the publication of preprints on our preprint server as of 1 March 2024. The publication culture within mathematics has changed so much due to the rise of repositories such as ArXiV (www.arxiv.org) that we are encouraging all institute members to make their preprints available there. An institute's repository in its previous form is, therefore, unnecessary. The preprints published to date will remain available here, but we will not add any new preprints here.

MiS Preprint
56/2009

Optimal Securitization of Credit Portfolios via Impulse Control

Rüdiger Frey and Roland C. Seydel

Abstract

We study the optimal loan securitization policy of a commercial bank which is mainly engaged in lending activities. For this we propose a stylized dynamic model which contains the main features affecting the securitization decision. In line with reality we assume that there are non-negligible fixed and variable transaction costs associated with each securitization. The fixed transaction costs lead to a formulation of the optimization problem in an impulse control framework. We prove viscosity solution existence and uniqueness for the quasi-variational inequality associated with this impulse control problem. Iterated optimal stopping is used to find a numerical solution of this PDE, and numerical examples are discussed.

Received:
Sep 7, 2009
Published:
Sep 11, 2009
MSC Codes:
35B37, 49L25, 49N25, 91B28, 91B70, 93E20
Keywords:
Securitization, credit portfolios, impulse control, Markov-switching economy, combined stochastic control, viscosity solutions, quasi-variational inequalities, iterated optimal stopping

Related publications

inJournal
2010 Repository Open Access
Rüdiger Frey and Roland C. Seydel

Optimal securitization of credit portfolios via impulse control

In: Mathematics and financial economics, 4 (2010) 1, pp. 1-28