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Khai Nguyen, North Carolina State University

Differential Game Models of Optimal Debt Management

4:00 pm – 4:50 pm
Avery Hall Room: 115
George Avalos,
I will present recent results on game theoretical formulation of optimal debt management problems in an 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.

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Hosted by George Avalos

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This event originated in Math Colloquia.