Work

Finite-time stability and optimal control for stochastic credit risk contagion model with sentiment

Year: 2022

Type: preprint

Abstract: Counterparty sentiment and major uncertain factors always affect credit risk contagion in credit risk transfer (CRT) market. In order to effectively analyze credit risk contagion, this paper proposes a stochastic credit risk contagion model considering sentiments, in which the stochasticity is driven by Lévy process. Based on the Lyapunov function method, sufficient condition of finite-time stability is derived. The impacts of counterparty sentiment and Lévy process on credit risk contagion are analyzed. To effectively control credit risk contagion, the stochastic credit risk control model is established, and the optimal control strategy is given by using Pontryagin’s maximum principle. Numerical simulating results show the correctness and effectiveness of the theory.

DOI: 10.22541/au.166417037.79439503/v1

Authors: Yan Shao, Ting Li, Weiguo Zhang, Wenting Zhao

Institutions: Ningxia University, South China University of Technology

Language: English

Topic: Stochastic processes and financial applications

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: gold

Funders: National Natural Science Foundation of China, Natural Science Foundation of Ningxia Province

Awards: G6437130653, G7569389211

OpenAlex ID: W4297154331

Cites: 28

Cited by:

Related to: 10