Sovereign Debt Contract and Optimal Consumption-Investment Strategies

2003 ◽  
Author(s):  
Andriy Demchuk
Keyword(s):  
Sovereign Debt ◽  
Optimal Consumption ◽  
Investment Strategies ◽  
Debt Contract

scholarly journals State-Dependent Utility

2009 ◽  
Vol 46 (1) ◽  
pp. 55-70 ◽  
Author(s):  
Jaime A. Londoño
Keyword(s):  
General Setting ◽  
Optimal Consumption ◽  
Investment Strategies ◽  
Economic Agents ◽  
State Dependent ◽  
Portfolio Problem ◽  
Functional Forms ◽  
Secondary Result ◽  
The One ◽  
Optimal Consumption And Investment

We propose a new approach to utilities in (state) complete markets that is consistent with state-dependent utilities. Full solutions of the optimal consumption and portfolio problem are obtained in a very general setting which includes several functional forms for utilities used in the current literature, and consider general restrictions on allowable wealths. As a secondary result, we obtain a suitable representation for straightforward numerical computations of the optimal consumption and investment strategies. In our model, utilities reflect the level of consumption satisfaction of flows of cash in future times as they are (uniquely) valued by the market when the economic agents are making their consumption and investment decisions. The theoretical framework used for the model is the one proposed in Londoño (2008). We develop the martingale methodology for the solution of the problem of optimal consumption and investment in this setting.

Stochastic volatility for utility maximizers — A martingale approach

2018 ◽  
Vol 05 (01) ◽  
pp. 1850007 ◽  
Author(s):  
Simon Ellersgaard ◽  
Martin Tegnér
Keyword(s):  
Stochastic Volatility ◽  
Optimal Strategies ◽  
Optimal Consumption ◽  
Investment Strategies ◽  
Relative Risk Aversion ◽  
Welfare Gains ◽  
Martingale Approach ◽  
Wealth Maximization ◽  
Heston's Model ◽  
Real Market

Using Martingale methods, we study the problem of optimal consumption-investment strategies in a complete financial market characterized by stochastic volatility. With Heston’s model as the working example, we derive optimal strategies for a constant relative risk aversion (CRRA) investor with particular attention to the cases where (i) she solely seeks to optimize her utility for consumption, and (ii) she solely seeks to optimize her bequest from investing in the market. Furthermore, we test the practical utility of our work by conducting an empirical study based on real market-data from the S&P500 index. Here, we concentrate on wealth maximization and investigate the degree to which the inclusion of derivatives facilitates higher welfare gains. Our experiments show that this is indeed the case, although we do not observe realized wealth-equivalents as high as expected. Indeed, if we factor in the increased transaction costs associated with including options, the results are somewhat less convincing.

scholarly journals Bonds and Brands: Foundations of Sovereign Debt Markets, 1820–1830

2009 ◽  
Vol 69 (3) ◽  
pp. 646-684 ◽  
Author(s):  
Marc Flandreau ◽  
Juan H. Flores
Keyword(s):  
Nineteenth Century ◽  
Market Power ◽  
Market Share ◽  
Empirical Data ◽  
Sovereign Debt ◽  
Investment Strategies ◽  
Information Asymmetries ◽  
Early Nineteenth Century ◽  
New Perspective ◽  
Finance Theory

How does sovereign debt emerge? In the early nineteenth century, intermediaries' market power and prestige served to overcome information asymmetries. Relying on insights from finance theory, we argue that capitalists turned to intermediaries' reputations to guide their investment strategies. Intermediaries could in turn commit or else they would lose market share. This sustained the development of sovereign debt. This new perspective is backed by archival evidence and empirical data, and it suggests why strong but undemocratic states could borrow.“A good name is worth more than a gem.”Yiddish proverb

Don’t cry for Argentina (or other Sovereign borrowers): lessons from a previous era of sovereign debt contract enforcement

2017 ◽  
Vol 12 (1) ◽  
pp. 9-37 ◽  
Author(s):  
Benjamin Chabot ◽  
Veronica Santarosa
Keyword(s):  
Sovereign Debt ◽  
Contract Enforcement ◽  
Debt Contract
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