Title: Optimal Inverstment Strategy with Heston Stochastic Volatility and Dynamicvar Constraint
Abstract: This paper considers an optimal portfolio choice problem under Heston stochastic volatility model and a dynamic Va R constraint. Assume the financial market consists of one risky asset,like stock,whose price satisfies a Heston stochastic volatility model and one risk-free asset,like bond. The investor aims to maximize the expected power utility of the terminal wealth. At the same time,the investor hopes to manage the portfolio risk by a dynamic Va R constraint,which means she will compute the Va R of her portfolio continually. Using the stochastic dynamic programming approach,we solve the problem numerically. Finally,economic implications are proposed to illustrate the impacts of Heston stochastic volatility and dynamic Va R constraint on the investor's optimal strategy. Our numerical experiment shows that the dynamic Va R criterion is an effective tool to manage the risk during the whole investment period.
Publication Year: 2015
Publication Date: 2015-01-01
Language: en
Type: article
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