Abstract
Based upon an observation that it is too restrictive to assume a definite correlation of the underlying asset price and its volatility, we use a hybrid model of the constant elasticity of variance and stochastic volatility to study a portfolio optimization problem for pension plans. By using asymptotic analysis, we derive a correction to the optimal strategy for the constant elasticity of variance model and subsequently the fine structure of the corrected optimal strategy is revealed. The result is a generalization of Merton’s strategy in terms of the stochastic volatility and the elasticity of variance.
| Original language | English |
|---|---|
| Pages (from-to) | 197-215 |
| Number of pages | 19 |
| Journal | Applications of Mathematics |
| Volume | 60 |
| Issue number | 2 |
| DOIs | |
| Publication status | Published - 2015 Jan 1 |
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All Science Journal Classification (ASJC) codes
- Applied Mathematics
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Portfolio optimization for pension plans under hybrid stochastic and local volatility. / Yang, Sung Jin; Kim, Jeong-Hoon; Lee, Min Ku.
In: Applications of Mathematics, Vol. 60, No. 2, 01.01.2015, p. 197-215.Research output: Contribution to journal › Article
TY - JOUR
T1 - Portfolio optimization for pension plans under hybrid stochastic and local volatility
AU - Yang, Sung Jin
AU - Kim, Jeong-Hoon
AU - Lee, Min Ku
PY - 2015/1/1
Y1 - 2015/1/1
N2 - Based upon an observation that it is too restrictive to assume a definite correlation of the underlying asset price and its volatility, we use a hybrid model of the constant elasticity of variance and stochastic volatility to study a portfolio optimization problem for pension plans. By using asymptotic analysis, we derive a correction to the optimal strategy for the constant elasticity of variance model and subsequently the fine structure of the corrected optimal strategy is revealed. The result is a generalization of Merton’s strategy in terms of the stochastic volatility and the elasticity of variance.
AB - Based upon an observation that it is too restrictive to assume a definite correlation of the underlying asset price and its volatility, we use a hybrid model of the constant elasticity of variance and stochastic volatility to study a portfolio optimization problem for pension plans. By using asymptotic analysis, we derive a correction to the optimal strategy for the constant elasticity of variance model and subsequently the fine structure of the corrected optimal strategy is revealed. The result is a generalization of Merton’s strategy in terms of the stochastic volatility and the elasticity of variance.
UR - http://www.scopus.com/inward/record.url?scp=84924985299&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84924985299&partnerID=8YFLogxK
U2 - 10.1007/s10492-015-0091-9
DO - 10.1007/s10492-015-0091-9
M3 - Article
VL - 60
SP - 197
EP - 215
JO - Applications of Mathematics
JF - Applications of Mathematics
SN - 0862-7940
IS - 2
ER -