Geodesic
Portfolio optimization for pension plans under hybrid stochastic and local volatility
Applications of Mathematics, Tome 60 (2015) no. 2, pp. 197-215

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Based upon an observation that it is too restrictive to assume a definite correlation of the underlying asset price and its volatility, we use a hybrid model of the constant elasticity of variance and stochastic volatility to study a portfolio optimization problem for pension plans. By using asymptotic analysis, we derive a correction to the optimal strategy for the constant elasticity of variance model and subsequently the fine structure of the corrected optimal strategy is revealed. The result is a generalization of Merton's strategy in terms of the stochastic volatility and the elasticity of variance.
DOI : 10.1007/s10492-015-0091-9
Classification : 90C39, 90C59, 90C90, 91G10
Keywords: pension plan; portfolio optimization; constant elasticity of variance; stochastic volatility; asymptotic analysis 
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Yang, Sung-Jin; Kim, Jeong-Hoon; Lee, Min-Ku. Portfolio optimization for pension plans under hybrid stochastic and local volatility. Applications of Mathematics, Tome 60 (2015) no. 2, pp. 197-215. doi: 10.1007/s10492-015-0091-9

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