Actuarial Science Seminar: Portfolio optimization in fractional and rough Heston models
Nicole Baeuerle (Karlsruhe Institute of Technology, Germany)
Tuesday 14 January 2020 (14h00 - 15h00) - Extranef - 109
We consider a fractional version of the Heston volatility model which is inspired by Guennoun et al. (2018). Within this model we treat portfolio optimization problems for power utility functions. Using a suitable representation of the fractional part, followed by a reasonable approximation we show that it is possible to cast the problem into the classical stochastic control framework. This approach is generic for fractional processes. We derive explicit solutions and obtain as a by-product the Laplace transform of the integrated volatility. In order to get rid of some undesirable features we introduce a new model for the rough path scenario which is based on the Marchaud fractional derivative. The talk is based on a joint work with S. Desmettre.