Faculty of Economics and Business Administration Publications Database

On the Stability of Continuos-Time Portfolio Problems with Stochastic Opportunity Set

Korn, Ralf
Volume: 14
Number: 3
Pages: 403 - 414
Month: July
ISSN-Print: 0960-1627
Link External Source: Online Version
Year: 2004
Keywords: Optimal portfolios; Stochastic interest rate; Cox-Ingersoll-Ross model; Stochastic volatility; Heston model; Stochastic market price of risk
Abstract: In this paper we present some counterexamples to show that an uncritical application of the usual methods of continuous-time portfolio optimization can be misleading in the case of a stochastic opportunity set. Cases covered are problems with stochastic interest rates, stochastic volatility, and stochastic market price of risk. To classify the problems occurring with stochastic market coefficients, we further introduce two notions of stability of portfolio problems.