Merton's portfolio problem under Volterra Heston model
Portfolio Management
2019-11-20 v2
Abstract
This paper investigates Merton's portfolio problem in a rough stochastic environment described by Volterra Heston model. The model has a non-Markovian and non-semimartingale structure. By considering an auxiliary random process, we solve the portfolio optimization problem with the martingale optimality principle. Optimal strategies for power and exponential utilities are derived in semi-closed form solutions depending on the respective Riccati-Volterra equations. We numerically examine the relationship between investment demand and volatility roughness.
Keywords
Cite
@article{arxiv.1905.05371,
title = {Merton's portfolio problem under Volterra Heston model},
author = {Bingyan Han and Hoi Ying Wong},
journal= {arXiv preprint arXiv:1905.05371},
year = {2019}
}
Comments
14 pages, 3 figures, exponential utility added