JOURNAL BROWSE
Search
Advanced SearchSearch Tips
OPTIMAL PORTFOLIO SELECTION UNDER STOCHASTIC VOLATILITY AND STOCHASTIC INTEREST RATES
facebook(new window)  Pirnt(new window) E-mail(new window) Excel Download
 Title & Authors
OPTIMAL PORTFOLIO SELECTION UNDER STOCHASTIC VOLATILITY AND STOCHASTIC INTEREST RATES
KIM, MI-HYUN; KIM, JEONG-HOON; YOON, JI-HUN;
  PDF(new window)
 Abstract
Although, in general, the random fluctuation of interest rates gives a limited impact on portfolio optimization, their stochastic nature may exert a significant influence on the process of selecting the proportions of various assets to be held in a given portfolio when the stochastic volatility of risky assets is considered. The stochastic volatility covers a variety of known models to fit in with diverse economic environments. In this paper, an optimal strategy for portfolio selection as well as the smoothness properties of the relevant value function are studied with the dynamic programming method under a market model of both stochastic volatility and stochastic interest rates.
 Keywords
Portfolio optimization;Stochastic volatility;Stochastic interest rates;Dynamic programming principle;
 Language
English
 Cited by
 References
1.
R.C. Merton, Lifetime portfolio selection under uncertainty: the continuous case, The Review of Economics and Statistics, 51(3) (1969), 247-257. crossref(new window)

2.
R.C. Merton, Optimal consumption and portfolio rules in a continuous time model, Journal of Economic Theory, 3 (1971), 373-413. crossref(new window)

3.
W.H Fleming and H.M. Soner, Controlled Markov Processes and Viscosity Solutions, New York, Springer, 1993.

4.
R.C. Merton, Continuous-Time Finance, Blackwell, 2005.

5.
A. Lioui and P. Poncet, On optimal portfolio choice under stochastic interest rates, Journal of Economic Dynamics and Control, 25(11) (2001), 1841-1865. crossref(new window)

6.
R. Korn and H. Kraft, A stochastic control approach to portfolio problems with stochastic interest rates, SIAM Journal on Control and Optimization, 40(4) (2002), 1250-1269. crossref(new window)

7.
W.H. Fleming and T. Pang, An application of stochastic control theory to financial economics, SIAM Journal on Control and Optimization, 43(2) (2004), 502-531. crossref(new window)

8.
J. Detemple and M. Rindisbacher, Closed form solutions for optimal portfolio election with stochastic interest rate and investment constraints, Mathematical finance, 15(4) (2005), 539-568. crossref(new window)

9.
J. Liu, Portfolio selection in stochastic environments, The Review of Financial Studies, 20(1) (2007), 1-39. crossref(new window)

10.
J.Z. Li and R. Wu, Optimal investment problem with stochastic interest rate and stochastic volatility: maximizing a power utility, Applied Stochastic Models in Business and Industry, 25(3) (2009), 407-420. crossref(new window)

11.
E.-J. Noh and J.-H. Kim, An optimal portfolio model with stochastic volatility and stochastic interest rate, Journal of Mathematical Analysis and Applications, 375(2) (2011), 510-522. crossref(new window)

12.
H. Chang and K. Chang, Dynamic portfolio selection with stochastic interest rates for quadratic utility maximizing, Chinese Journal of Applied Probability and Statistics, 28(3) (2012), 301-310.

13.
Y. Shen and T.K. Siu, Asset allocation under stochastic interest rate with regime switching, Economic Modelling, 29(4) (2012), 1126-1136. crossref(new window)

14.
T. Zariphopoulou, Optimal investment and consumption models with nonlinear stock dynamics, Mathematical Methods of Operations Research, 50 (1999), 271-296. crossref(new window)

15.
W.H. Fleming and D. Hernandez-Hernandez, An optimal consumption model with stochastic volatility, Finance and Stochastics, 7(2) (2003), 245-262. crossref(new window)

16.
G. Chacko and L.M. Viceira, Dynamic consumption and portfolio choice with stochastic volatility in incomplete markets, The Review of Financial Studies, 18(4) (2005), 1369-1402. crossref(new window)

17.
M. Fukasawa, Asymptotic analysis for stochastic volatility: martingale expansion, Finance and Stochastics, 15(4) (2011), 635-654. crossref(new window)

18.
R.W. Lee, Implied and local volatilities under stochastic volatility, International Journal of Theoretical and Applied Finance, 4(1) (2001), 45-89.

19.
A.L. Lewis, Option Valuation under Stochastic Volatility with Mathematica Code, Finance Press, Newport Beach, 2000.

20.
O. Vasicek, An equilibrium characterisation of the term structure, Journal of Financial Economics, 5(2) (1977), 177-188. crossref(new window)

21.
K. Ito, Stochastic Integral, Proc. Imperial Acad. Tokyo, 20 (1944), 519-524. crossref(new window)

22.
B. Oksendal, Stochastic Differential Equations, Springer, New York, 2003.

23.
R.E. Bellman, Dynamic programming and a new formalism in the calculus of variations, Proc. Nat. Acad. Sci, 40(4) (1954), 231-235. crossref(new window)

24.
J.L. Kelley, General topology, Springer-Verlag, 1991.

25.
T.H. Gronwall, Note on the derivatives with respect to a parameter of the solutions of a system of differential equations, The Annals of Mathematics, 20 (1919), 292-296. crossref(new window)

26.
W.H. Fleming and R.W. Rishel, Deterministic and Stochastic Optimal Control, Springer, New York, 1975.