An ε-Optimal Portfolio with Stochastic Volatility

Gabih Abdelali and Grecksch Wilfried

Monte Carlo Methods and Applications, 2005, vol. 11, issue 1, 1-14

Abstract: We consider an extended Merton's problem of optimal consumption and investment in continuous-time with stochastic volatility. The wealth process of the investor is approximated by a particular weak Itô-Taylor approximation called Euler scheme. It is shown that the optimal control of the value function generated by the Euler scheme is an ε-optimal control of the original problem of maximizing total expected discounted HARA utility from consumption.

Keywords: Stochastic volatility; portfolio optimization; ε-optimal control; time-discrete approximation. (search for similar items in EconPapers)
Date: 2005
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DOI: 10.1515/1569396054027256

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