An explicit solution for optimal investment in Heston model

DOI10.1137/S0040585X97T987946MaRDI QIDQ3178733zbMATH OpenFDO

Authors Elena Boguslavskaya, Dmitry Muravey

Publication date 7 December 2016

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

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

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)

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.

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