| تعداد نشریات | 62 |
| تعداد شمارهها | 2,323 |
| تعداد مقالات | 19,157 |
| تعداد مشاهده مقاله | 61,575,789 |
| تعداد دریافت فایل اصل مقاله | 31,228,862 |
Stochastic optimal control with Contingent Convertible Bond in banking industry | ||
| Journal of Mathematics and Modeling in Finance | ||
| دوره 2، شماره 2، اسفند 2022، صفحه 151-166 اصل مقاله (275.73 K) | ||
| نوع مقاله: Research Article | ||
| شناسه دیجیتال (DOI): 10.22054/jmmf.2023.15190 | ||
| نویسندگان | ||
| Asma Khadimallah* ؛ Fathi Abid | ||
| University of Sfax | ||
| چکیده | ||
| This paper has potential implications for the management of the bank. We examine a bank capital structure with contingent convertible debt to improve financial stability. This type of debt converts to equity when the bank is facing financial difficulties and a conversion trigger occurs. We use a leverage ratio, which is introduced in Basel III to trigger conversion instead of traditional capital ratios. We formulate an optimization problem for a bank to choose an asset allocation strategy to maximize the expected utility of the bank's asset value. Our study presents an application of stochastic optimal control theory to a banking portfolio choice problem. By applying a dynamic programming principle to derive the HJB equation, we define and solve the optimization problem in the power utility case.The numerical results show that the evolution of the optimal asset allocation strategy is really affected by the realization of the stochastic variables characterizing the economy. We carried out a sensitivity analysis of risk aversion, time and volatility. We also reveal that the optimal asset allocation strategy is relatively sensitive to risk aversion as well as that the allocation in CoCo and equity decreases as the investment horizon increases. Finally, sensitivity analysis highlights the importance of dynamic considerations in optimal asset allocation based on the stochastic characteristics of investment opportunities. | ||
| کلیدواژهها | ||
| Contingent convertible bond؛ stochastic optimal control؛ asset allocation strategy؛ bank capital structure؛ optimization problem؛ power utility | ||
| مراجع | ||
|
[1] Albul, B., Jaffee, D.M. and Tchistyi, A., Contingent Convertible Bonds and Capital Structure Decisions, Working paper, University of California, Berkeley (2010). [2] Black, F., and Scholes, M., The pricing of options and corporate liabilities, Journal of political economy, 81(3), 637 654, (1973). [3] Bosch, T., Mukuddem-Petersen, J., Petersen, M. A. and Schoeman, I. M., Optimalauditing in the banking industry, Optimal Control, 28, 173 189 (2007). [4] Dai, M., Jiang, L., Li, P. and Yi, F., Finite horizon optimal investment and consumption with transaction costs, SIAM Journal on Control and Optimization, 48(2), 1134-1154 (2009). [5] Deelstra, G., Grasselli, M. and Koehl, P. F., Optimal investment strategies in the presence of a minimum guarantee, Insurance: Mathematics and Economics, 33(1), 189-207(2003). [6] Duffie, D., Fleming, W., Soner, H. M. and Zariphopoulou, T., Hedging in incomplete markets with HARA utility, Journal of Economic Dynamics and Control, 21(4-5), 753-782(1997). [7] Flannery, M. J., No pain, no gain? Effecting market discipline via reverse convertible debentures, Capital adequacy beyond Basel: Banking, securities, and insurance, 171-196(2005). [8] Flannery, M.J, Stabilizing Large Financial Institutions with Contingent Capital Certicates, Available at SSRN: http://ssrn.com/abstract=1485689 (2009). [9] Glasserman, P. and Wang, Z., Valuing the Treasury's Capital Assistance Program, Federal Reserve Bank of New York Staff Report No, 413, (2009). [10] Hackbarth, D., Miao, J. and Morellec, E., Capital structure, credit risk and macroeconomic conditions, Journal of Financial Economics, 82(3), 519 550 (2006). [11] Korn, R. and Kraft, H., A stochastic control approach to portfolio problems with stochastic interest rates, SIAM Journal on Control and Optimization, 40(4), 1250-1269 (2002). [12] Kronborg, M. T. and Steffensen, M., Inconsistent investment and consumption problems, Applied Mathematics and Optimization, 71(3), 473 515 (2015). [13] McDonald, R. L., Contingent capital with a dual price trigger, Journal of Financial Stability,9(2), 230-241 (2013). [14] Merton, R. C., Lifetime portfolio selection under uncertainty: The continuous-time case, The review of Economics and Statistics, 247-257 (1969). [15] Merton, R. C., Optimum consumption and portfolio rules in a continuous-time model, In Stochastic optimization models in nance (pp. 621-661), Academic Press (1975). [16] Mukuddem-Petersen, J. and Petersen, M. A., Bank management via stochastic optimal control, Automatica, 42, 1395 1406, MR2242924 (2006). [17] Mukuddem-Petersen, J. and Petersen, M. A., Optimizing asset and capital adequacy management in banking, Journal of Optimization Theory and Applications, 137(1), 205-230(2008). [18] Pennacchi, G., A Structural Model of Contingent Bank Capital, Federal Reserve Bank of Cleveland Working Paper 10 04 (2010). [19] Raviv, A., Bank Stability and Market Discipline: Debt-for-Equity Swap versus Subordinated Notes, Available at SSRN: http://ssrn.com/abstract=575862 (2004). [20] Repullo, R., Capital requirements, market power, and risk-taking in banking, Journal of nancial Intermediation, 13(2),156-182 (2004). [21] Squam Lake Working Group, An Expedited Resolution Mechanism for Distressed Financial Firms: Regulatory Hybrid Securities, Council on Foreign Relations (2009). [22] Sundaresan, S. and Wang, Z., On the design of contingent capital with a market trigger, The Journal of Finance, 70(2), 881-920 (2015). [23] Vila, J. L. and Zariphopoulou, T., Optimal consumption and portfolio choice with borrowing constraints, Journal of economic theory, 77(2), 402-431 (1997). [24] Yao, R. and Zhang, H. H., Optimal consumption and portfolio choices with risky housing and borrowing constraints, The Review of Financial Studies, 18(1), 197-239 (2005). [25] Zhao, Q., Shen, Y. and Wei, J., Consumption investment strategies with non-exponential discounting and logarithmic utility, European Journal of Operational Research, 238(3), 824835 (2014). | ||
|
آمار تعداد مشاهده مقاله: 862 تعداد دریافت فایل اصل مقاله: 588 |
||