Optimal Portfolios and Heston's Stochastic Volatility Model
Goethe University Frankfurt
December 19, 2003
Given an investor maximizing utility from terminal wealth with respect to a power utility function, we present a verification result for portfolio problems with stochastic volatility. Applying this result, we solve the portfolio problem for Heston's stochastic volatility model. We find that only under a specific condition on the model parameters the problem possesses a unique solution leading to a partial equilibrium.
Keywords: Optimal portfolios, stochastic volatility, Heston model
JEL Classification: G11working papers series
Date posted: February 14, 2005
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