2021/06/29 by Guodong Ding, Ding, Guodong, Daniele Marazzina +1
Economics, Econometrics and Finance · #Economic theories and models #FOS: Economics and business #Mathematical Finance (q-fin.MF) #Portfolio Management (q-fin.PM) #q-fin.MF #q-fin.PM
paper · pdf · doi:10.48550/arxiv.2106.15426
arxiv created 2021/06/29 · openalex publication_date 2021/06/29 · arxiv updated 2021/06/30 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
In this paper we deal with the optimal bankruptcy problem for an agent who can optimally allocate her consumption rate, the amount of capital invested in the risky asset as well as her leisure time. In our framework, the agent is endowed by an initial debt, and she is required to repay her debt continuously. Declaring bankruptcy, the debt repayment is exempted at the cost of a wealth shrinkage. We implement the duality method to solve the problem analytically and conduct a sensitivity analysis to the cost and benefit parameters of bankruptcy. Introducing the flexible leisure/working rate, and therefore the labour income, into the bankruptcy model, we investigate its effect on the optimal strategies.