Mean-variance portfolio with wealth and volatility dependent risk aversion
The author posits that the rate of risk aversion depends on the portfolio's volatility, which is further divided into two components: the volatility prudence rate and the wealth prudence rate. The former reflects the investor's risk attitude toward wealth, while the latter pertains to their risk attitude toward price uncertainty.\N\NIn Section 2, the author introduces a mean-variance quadratic utility framework that incorporates the volatility-dependent risk aversion rate and updates the underlying wealth process to account for fast-scale stochastic volatility. This is followed by an exploration of the extended Hamilton-Jacobi-Bellman (HJB) equation within a specific model framework. In the subsequent section, the optimal strategy is analyzed and separated into two components: the leading strategy and the volatility correction strategy.\N\NFinally, the author concludes by demonstrating many of the findings through illustrative and motivating examples.
- Optimal asset portfolio with stochastic volatility under the mean-variance utility with state-dependent risk aversion
- scientific article; zbMATH DE number 2147273
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