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Optimal securitization of credit portfolios via impulse control

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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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Authors and Affiliations

  1. Department of Mathematics, Universität Leipzig, 04009, Leipzig, Germany

    Rüdiger Frey

  2. German Finance Agency, Lurgiallee 5, 60295, Frankfurt/Main, Germany

    Roland C. Seydel

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  1. Rüdiger Frey
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  2. Roland C. Seydel
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Correspondence to Rüdiger Frey.

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Frey, R., Seydel, R.C. Optimal securitization of credit portfolios via impulse control. Math Finan Econ 4, 1–28 (2010). https://doi.org/10.1007/s11579-010-0033-y

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