ON THE STABILITY OF CONTINUOUS‐TIME PORTFOLIO PROBLEMS WITH STOCHASTIC OPPORTUNITY SET

Ralf Korn and Holger Kraft

Mathematical Finance, 2004, vol. 14, issue 3, 403-414

Abstract: In this paper we present some counterexamples to show that an uncritical application of the usual methods of continuous‐time portfolio optimization can be misleading in the case of a stochastic opportunity set. Cases covered are problems with stochastic interest rates, stochastic volatility, and stochastic market price of risk. To classify the problems occurring with stochastic market coefficients, we further introduce two notions of stability of portfolio problems.

Date: 2004
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