A stochastic volatility model and optimal portfolio selection

Xudong Zeng and Michael Taksar

Quantitative Finance, 2013, vol. 13, issue 10, 1547-1558

Abstract: In this paper, first we study a stochastic volatility market model for which an explicit candidate solution to the problem of maximizing the utility function of terminal wealth is obtained. Applying this result, we present a complete solution for the Heston model, which is a particular case of the general model. A verification result and a martingale representation of the solution are provided for the Heston model. Finally, the same techniques are used to study a stochastic interest rate model and a necessary and sufficient condition for exploding growth is presented.

Date: 2013
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Citations: View citations in EconPapers (30)

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DOI: 10.1080/14697688.2012.740568

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