Portfolios and risk premia for the long run (Q2428051)

The author studies the optimal strategy problem under a general multidimensional diffusion processes driven by state variables. This in particular includes stochastic volatility models with stochastic drifts. They derive a closed-form expression for the optimal portfolio when the maturity tends to infinity. Their proof is based on similar arguments developed by \textit{H. Kaise} and \textit{S.-J. Cheu} [Ann. Probab. 34, No. 1, 284--320 (2006; Zbl 1092.60030)], and they also provide hints on the link with the Donsker-Varadhan approach of large deviations [\textit{M. D. Donsker} and \textit{S. R. S. Varadhan}, Commun. Pure Appl. Math. 28, 1--47 (1975; Zbl 0323.60069); ibid. 28, 279--301 (1975; Zbl 0348.60031), Commun. Pure Appl. Math. 29, 389--461 (1976; Zbl 0348.60032), Commun. Pure Appl. Math. 36, 183-212 (1983; Zbl 0512.60068)]. They derive candidates for the optimal portfolio and risk premia, which depend on the solutions of a quasi-linear PDE (essentially a long-time version of the HJB equation). They also prove existence of the solutions of such equations.