J. Korean Math. Soc. 2022; 59(6): 1153-1170
Online first article October 23, 2022 Printed November 1, 2022
https://doi.org/10.4134/JKMS.j210728
Copyright © The Korean Mathematical Society.
Jiling Cao, Beidi Peng, Wenjun Zhang
Auckland University of Technology; Auckland University of Technology; Auckland University of Technology
In this paper, we investigate the portfolio optimization problem under the SVCEV model, which is a hybrid model of constant elasticity of variance (CEV) and stochastic volatility, by taking into account of minimum-entropy robustness. The Hamilton-Jacobi-Bellman (HJB) equation is derived and the first two orders of optimal strategies are obtained by utilizing an asymptotic approximation approach. We also derive the first two orders of practical optimal strategies by knowing that the underlying Ornstein-Uhlenbeck process is not observable. Finally, we conduct numerical experiments and sensitivity analysis on the leading optimal strategy and the first correction term with respect to various values of the model parameters.
Keywords: Asymptotic approximation, exponential utility, HJB equation, optimal strategy, robust, SVCEV model
MSC numbers: Primary 91G10; Secondary 90C39, 90C59, 90C90
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