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arXiv · 1905.05371

Merton's portfolio problem under Volterra Heston model

Bingyan Han·Hoi Ying Wong
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Abstract

This paper investigates Merton's portfolio problem in a rough stochastic environment described by Volterra Heston model. The model has a non-Markovian and non-semimartingale structure. By considering an auxiliary random process, we solve the portfolio optimization problem with the martingale optimality principle. Optimal strategies for power and exponential utilities are derived in semi-closed form solutions depending on the respective Riccati-Volterra equations. We numerically examine the relationship between investment demand and volatility roughness.

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Bingyan Han, Hoi Ying Wong. 2019-11-19. Merton's portfolio problem under Volterra Heston model. https://arxiv.org/abs/1905.05371

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