Università degli Studi di Padova

“Differential Game Models of Optimal Debt Management”

Martedì 30 Giugno 2020, ore 15:00 - Zoom - Khai Tien Nguyen (North Carolina State University, USA)

Abstract

In this talk, I will present recent results on game theoretical formulation of optimal debt management problems in infinite time horizon with exponential discount, modeled as a noncooperative interaction between a borrower and a pool of risk-neutral lenders. Here, the yearly income of the borrower is governed by a stochastic process and bankruptcy instantly occurs when the debt-to-income ratio reaches a threshold. Since the borrower may go bankrupt in finite time, the risk-neutral lenders will charge a higher interest rate in order to compensate for this possible loss of their investment. Thus, a solution must be understood as a Nash equilibrium, where the strategy implemented by the borrower represents the best reply to the strategy adopted by the lenders, and conversely. This leads to highly nonstandard optimization processes.

10/07/2020 11:11