Optimal portfolio under fast mean-reverting fractional stochastic environment
From MaRDI portal
Publication:4579834
Abstract: Empirical studies indicate the existence of long range dependence in the volatility of the underlying asset. This feature can be captured by modeling its return and volatility using functions of a stationary fractional Ornstein--Uhlenbeck (fOU) process with Hurst index . In this paper, we analyze the nonlinear optimal portfolio allocation problem under this model and in the regime where the fOU process is fast mean-reverting. We first consider the case of power utility, and rigorously give first order approximations of the value and the optimal strategy by a martingale distortion transformation. We also establish the asymptotic optimality in all admissible controls of a zeroth order trading strategy. Then, we extend the discussions to general utility functions using the epsilon-martingale decomposition technique, and we obtain similar asymptotic optimality results within a specific family of admissible strategies.
Recommendations
- Optimal portfolio under fractional stochastic environment
- Portfolio optimization under fast mean-reverting and rough fractional stochastic environment
- Portfolio optimization and stochastic volatility asymptotics
- Merton's model of optimal portfolio in a Black-Scholes market driven by a fractional Brownian motion with short-range dependence
- Optimal portfolio in fractional Brownian motion environment
Cites work
- scientific article; zbMATH DE number 1642341 (Why is no real title available?)
- scientific article; zbMATH DE number 1944329 (Why is no real title available?)
- scientific article; zbMATH DE number 1517499 (Why is no real title available?)
- An Introduction to (Stochastic) Calculus with Respect to Fractional Brownian Motion
- Asymptotic optimal strategy for portfolio optimization in a slowly varying stochastic environment
- Correction to Black-Scholes formula due to fractional stochastic volatility
- Empirical properties of asset returns: stylized facts and statistical issues
- Estimation and pricing under long-memory stochastic volatility
- Explicit solutions of some utility maximization problems in incomplete markets
- Exponential utility indifference valuation in two Brownian settings with stochastic correlation
- Fractional Brownian Motions, Fractional Noises and Applications
- Fractional {O}rnstein-{U}hlenbeck processes
- Long range dependence in financial markets
- Multiscale stochastic volatility for equity, interest rate, and credit derivatives.
- Necessary and sufficient conditions in the problem of optimal investment in incomplete markets
- OPTIMAL INVESTMENT STRATEGIES FOR CONTROLLING DRAWDOWNS
- On fractional Ornstein-Uhlenbeck processes
- Optimal consumption choices for a `large' investor
- Optimal investment and consumption models with non-linear stock dynamics
- Optimal lifetime consumption and investment under a drawdown constraint
- Optimum consumption and portfolio rules in a continuous-time model
- Portfolio Choice with Transaction Costs: A User’s Guide
- Portfolio optimization and stochastic volatility asymptotics
- Portfolio optimization under fast mean-reverting and rough fractional stochastic environment
- Portfolio optimization under local-stochastic volatility: coefficient Taylor series approximations and implied Sharpe ratio
- Portfolio selection with transactions costs
- Stochastic Calculus for Fractional Brownian Motion and Applications
- Stochastic volatility and option pricing with long-memory in discrete and continuous time
- The detection and estimation of long memory in stochastic volatility
- What good is a volatility model?
Cited in
(24)- Portfolio Optimization in Fractional and Rough Heston Models
- Optimal portfolio under fractional stochastic environment
- Optimal reinsurance-investment with loss aversion under rough Heston model
- Asymptotic optimal strategy for portfolio optimization in a slowly varying stochastic environment
- The correction of multiscale stochastic volatility to American put option: an asymptotic approximation and finite difference approach
- Partial hedging in rough volatility models
- Optimal hedging under fast-varying stochastic volatility
- Modeling and forecasting realized volatility with the fractional Ornstein-Uhlenbeck process
- Option pricing under fast-varying and rough stochastic volatility
- Multiscale asymptotic analysis for portfolio optimization under stochastic environment
- Time-inconsistency with rough volatility
- Portfolio optimization under fast mean-reverting and rough fractional stochastic environment
- Optimal portfolio in a fractional Black \& Scholes market
- Robust control in a rough environment
- Infinite server queues in a random fast oscillatory environment
- Markowitz portfolio selection for multivariate affine and quadratic Volterra models
- Mean-variance portfolio selection under Volterra Heston model
- On optimal investment with processes of long or negative memory
- Solving parametric fractional differential equations arising from the rough Heston model using quasi-linearization and spectral collocation
- A martingale approach for fractional Brownian motions and related path dependent PDEs
- Asset prices with investor protection and past information
- Stochastic volatility asymptotics for optimal subsistence consumption and investment with bankruptcy
- Analysis of optimal portfolio on finite and small-time horizons for a stochastic volatility market model
- On the optimal forecast with the fractional Brownian motion
This page was built for publication: Optimal portfolio under fast mean-reverting fractional stochastic environment
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q4579834)
