Journal
MATHEMATICAL FINANCE
Volume 14, Issue 3, Pages 403-414Publisher
BLACKWELL PUBLISHERS
DOI: 10.1111/j.0960-1627.2004.00197.x
Keywords
optimal portfolios; stochastic interest rate; Cox-Ingersoll-Ross model; stochastic volatility; Heston model; stochastic market price of risk
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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.
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