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 |
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Pages (from-to) | 197-215 |
Number of pages | 19 |
Journal | Applications of Mathematics |
Volume | 60 |
Issue number | 2 |
DOIs | |
Publication status | Published - 2015 Apr |
Bibliographical note
Publisher Copyright:© 2015, Institute of Mathematics of the Academy of Sciences of the Czech Republic, Praha, Czech Republic.
All Science Journal Classification (ASJC) codes
- Applied Mathematics