Portfolio optimization with consumption in a fractional Black-Scholes market | Zendy

Yalçin Sarol | Zendy; Frédéri Viens | Zendy; Tao Zhang | Zendy

AI Assistant Blog Pricing

Home ZAIA Blog

Open Access

Portfolio optimization with consumption in a fractional Black-Scholes market

Author(s) -

Yalçin Sarol,

Frédéri Viens,

Tao Zhang

Publication year - 2007

Publication title -

communications on stochastic analysis

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.224

H-Index - 10

eISSN - 2688-6669

pISSN - 0973-9599

DOI - 10.31390/cosa.1.3.02

Subject(s) - portfolio , black–scholes model , consumption (sociology) , economics , financial economics , portfolio optimization , actuarial science , business , sociology , volatility (finance) , social science

We consider the classical Merton problem of flnding the optimal consumption rate and the optimal portfolio in a Black-Scholes market driven by fractional Brownian motion B H with Hurst parameter H > 1=2. The integrals with respect to B H are in the Skorohod sense, not pathwise which is known to lead to arbitrage. We explicitly flnd the optimal consumption rate and the optimal portfolio in such a market for an agent with logarithmic utility functions. A true self-flnancing portfolio is found to lead to a con- sumption term that is always favorable to the investor. We also present a numerical implementation by Monte Carlo simulations.

The content you want is available to Zendy users.

Already have an account? Click here to sign in.

Having issues? You can contact us here

Accelerating Research