Optimal control problems for stochastic processes with absorbing regime
arXiv:2305.01490 · doi:10.31390/josa.4.1.06
Abstract
In this paper we formulate and solve an optimal problem for Stochastic process with a regime absorbing state. The solution for this problem is obtained through a system of partial differential equations. The method is applied to obtain an explicit solution for the Merton portfolio problem when an asset has a default probability in case of a log utility.
7 pages