Optimal securitization of credit portfolios via impulse control |
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Authors: | Rüdiger Frey Roland C Seydel |
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Institution: | (1) Freddie Mac, Housing Analysis and Research, 8250 Jones Branch Drive, McLean, VA 22101, USA;(2) 1810 Union St., Niskayuna, NY 12309, USA |
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Abstract: | We study the optimal loan securitization policy of a commercial bank which is mainly engaged in lending activities. For this
we propose a stylized dynamic model which contains the main features affecting the securitization decision. In line with reality
we assume that there are non-negligible fixed and variable transaction costs associated with each securitization. The fixed
transaction costs lead to a formulation of the optimization problem in an impulse control framework. We prove viscosity solution
existence and uniqueness for the quasi-variational inequality associated with this impulse control problem. Iterated optimal
stopping is used to find a numerical solution of this PDE, and numerical examples are discussed. |
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Keywords: | |
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