An explicit solution for optimal investment in Heston model

DOI10.1137/S0040585X97T987946zbMATH Open1355.35183arXiv1505.02431MaRDI QIDQ3178733FDOQ3178733

Elena Boguslavskaya, Dmitry Muravey

Publication date: 7 December 2016

Published in: Theory of Probability & Its Applications (Search for Journal in Brave)

Abstract: In this paper we consider a variation of the Merton's problem with added stochastic volatility and finite time horizon. It is known that the corresponding optimal control problem may be reduced to a linear parabolic boundary problem under some assumptions on the underlying process and the utility function. The resulting parabolic PDE is often quite difficult to solve, even when it is linear. The present paper contributes to the pool of explicit solutions for stochastic optimal control problems. Our main result is the exact solution for optimal investment in Heston model.

Full work available at URL: https://arxiv.org/abs/1505.02431

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zbMATH Keywords

optimal control problemHeston modelWhittaker model

Mathematics Subject Classification ID

PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Existence theories for optimal control problems involving partial differential equations (49J20) Stochastic models in economics (91B70) Financial applications of other theories (91G80)

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Cited In (11)

• Title not available (Why is that?)
• Optimal investment and reinsurance strategies under 4/2 stochastic volatility model
• Optimal portfolio for the Heston model
• Transition density function expansion methods for portfolio optimization
• Optimal portfolios and Heston's stochastic volatility model: an explicit solution for power utility
• Robust optimal investment problem with delay under Heston's model
• An explicitly solvable Heston model with stochastic interest rate
• Dual control Monte-Carlo method for tight bounds of value function under Heston stochastic volatility model
• Optimal portfolio management in a modified constant elasticity of variance model
• Computational technique for simulating variable-order fractional Heston model with application in US stock market
• Optimal investment, consumption, and work effort strategies with stochastic salary under the HLSV model

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