2019/05/14 by Bingyan Han, Han, Bingyan, Hoi Ying Wong +1 · 1 citation
Economics, Econometrics and Finance · #Economic theories and models #FOS: Economics and business #Financial Markets and Investment Strategies #Portfolio Management (q-fin.PM) #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1905.05371
openalex publication_date 2019/05/14 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
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.