Homotopy Analysis Method for Portfolio Optimization Problem Under the 3/2 Model

Yang, Shuquan; Jia, Zhiping; Wu, Qi‐Hui; Wu, Huojun

doi:10.1007/s11424-021-9286-1

Cited by 1 publication

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“…However, it is found that the Heston stochastic volatility model cannot fit the extreme cases with excessive volatility, but the 3/2 stochastic volatility model, as an inverse CIR process, can make up for the deficiency of the Heston stochastic volatility. Therefore, the problem of optimal consumption and investment based on the 3/2 stochastic volatility model has attracted wide attention [14][15][16][17]. Although the 3/2 stochastic volatility model remedies the defects of the Heston stochastic volatility model, it cannot fit the low volatility of asset prices.…”

Section: Introductionmentioning

confidence: 99%

Optimal Consumption and Investment Problem under 4/2-CIR Stochastic Hybrid Model

Ma,

Zhang,

Wang

2023

Mathematics

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In this paper, we investigate the optimal consumption and investment problem under the expected utility maximization criterion. It is supposed that the financial market consists of a risky asset and a risk-free asset, and the risky asset prices follow the 4/2 Cox–Ingersoll–Ross (CIR) stochastic hybrid model. The investment objective is to obtain an optimal consumption–investment strategy by maximizing the objective function. The closed-form expression of the optimal consumption–investment strategy is obtained by using optimal control theory and the corresponding Hamilton–Jacobi–Bellman (HJB) equation under the power utility function. In addition, we present a numerical example to illustrate the influence of model parameters on the optimal consumption–investment strategy.

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Section: Introductionmentioning

confidence: 99%