A model of debt with bankruptcy risk and currency devaluation

25 Oct 2019 Capuani Rossana Gilmore Steven Nguyen Khai T.

The paper studies a system of Hamilton-Jacobi equations, arising from a stochastic optimal debt management problem in an infinite time horizon with exponential discount, modeled as a noncooperative interaction between a borrower and a pool of risk-neutral lenders. In this model, the borrower is a sovereign state that can decide how much to devaluate its currency and which fraction of its income should be used to repay the debt... (read more)

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  • OPTIMIZATION AND CONTROL
  • ANALYSIS OF PDES