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Author NameChase, Tyler A.
TitleMinimizing the Probability of Ruin in Exchange Rate Markets
DepartmentMathematical Sciences
  • Hasanjan Sayit, Advisor
  • Keywords
  • stochastic optimal control
  • optimal investment
  • stochastic calculus
  • Date of Presentation/Defense2009-04-30
    Availability unrestricted


    The goal of this paper is to extend the results of Bayraktar and Young (2006) on minimizing an individual's probability of lifetime ruin; i.e. the probability that the individual goes bankrupt before dying. We consider a scenario in which the individual is allowed to invest in both a domestic bank account and a foreign bank account, with the exchange rate between the two currencies being modeled by geometric Brownian motion. Additionally, we impose the restriction that the individual is not allowed to borrow money, and assume that the individual's wealth is consumed at a constant rate. We derive formulas for the minimum probability of ruin as well as the individual's optimal investment strategy. We also give a few numerical examples to illustrate these results.

  • MasterProject2009.pdf

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