Portfolio optimization under local-stochastic volatility: Coefficient taylor series approximations and implied sharpe ratio
Author(s): Lorigt, M; Sircar, Ronnie
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Full metadata record
DC Field | Value | Language |
---|---|---|
dc.contributor.author | Lorigt, M | - |
dc.contributor.author | Sircar, Ronnie | - |
dc.date.accessioned | 2021-10-11T14:18:00Z | - |
dc.date.available | 2021-10-11T14:18:00Z | - |
dc.date.issued | 2016-01-01 | en_US |
dc.identifier.citation | Lorigt, M, Sircar, R. (2016). Portfolio optimization under local-stochastic volatility: Coefficient taylor series approximations and implied sharpe ratio. SIAM Journal on Financial Mathematics, 7 (1), 418 - 447. doi:10.1137/15M1027073 | en_US |
dc.identifier.uri | http://arks.princeton.edu/ark:/88435/pr14w0z | - |
dc.description.abstract | © 2016 Society for Industrial and Applied Mathematics. We study the finite horizon Merton portfolio optimization problem in a general local-stochastic volatility setting. Using model coefficient expan sion techniques, we derive approximations for both the value function and the optimal investment s trategy. We also analyze the "implied Sharpe ratio" and derive a series approximation for this quan tity. The zeroth order approximation of the value function and optimal investment strategy correspond to those obtained by [Merton, Rev. Econ. Statist., 51, pp. 247-257] when the risky asset follows a geometric Brownian motion. The first order correction of the value function can, for general utility functions, be expressed as a differential operator acting on the zeroth order term. For power utility functions, higher order terms can also be computed as a differential operator acting on the zeroth order term. While our approximations are derived formally, we give a rigorous accuracy bound for the higher order approximations in this case in pure stochastic volatility models. a number of examples are provided in order to demonstrate numerically the accuracy of our approximations. | en_US |
dc.format.extent | 418 - 447 | en_US |
dc.language.iso | en_US | en_US |
dc.relation.ispartof | SIAM Journal on Financial Mathematics | en_US |
dc.rights | Author's manuscript | en_US |
dc.title | Portfolio optimization under local-stochastic volatility: Coefficient taylor series approximations and implied sharpe ratio | en_US |
dc.type | Journal Article | en_US |
dc.identifier.doi | doi:10.1137/15M1027073 | - |
dc.identifier.eissn | 1945-497X | - |
pu.type.symplectic | http://www.symplectic.co.uk/publications/atom-terms/1.0/journal-article | en_US |
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