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- Publisher Website: 10.1016/j.ejor.2019.07.041
- Scopus: eid_2-s2.0-85069957366
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Article: Dual control Monte-Carlo method for tight bounds of value function under Heston stochastic volatility model
Title | Dual control Monte-Carlo method for tight bounds of value function under Heston stochastic volatility model |
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Authors | |
Keywords | Dual control Monte-Carlo method Heston stochastic volatility model Non-HARA and Yaari utilities Tight lower and upper bounds Utility maximization |
Issue Date | 2020 |
Citation | European Journal of Operational Research, 2020, v. 280, n. 2, p. 428-440 How to Cite? |
Abstract | The aim of this paper is to study the fast computation of the lower and upper bounds on the value function for utility maximization under the Heston stochastic volatility model with general utility functions. It is well known there is a closed form solution to the HJB equation for power utility due to its homothetic property. It is not possible to get closed form solution for general utilities and there is little literature on the numerical scheme to solve the HJB equation for the Heston model. In this paper we propose an efficient dual control Monte-Carlo method for computing tight lower and upper bounds of the value function. We identify a particular form of the dual control which leads to the closed form upper bound for a class of utility functions, including power, non-HARA and Yaari utilities. Finally, we perform some numerical tests to see the efficiency, accuracy, and robustness of the method. The numerical results support strongly our proposed scheme. |
Persistent Identifier | http://hdl.handle.net/10722/327711 |
ISSN | 2023 Impact Factor: 6.0 2023 SCImago Journal Rankings: 2.321 |
ISI Accession Number ID |
DC Field | Value | Language |
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dc.contributor.author | Ma, Jingtang | - |
dc.contributor.author | Li, Wenyuan | - |
dc.contributor.author | Zheng, Harry | - |
dc.date.accessioned | 2023-04-24T05:09:25Z | - |
dc.date.available | 2023-04-24T05:09:25Z | - |
dc.date.issued | 2020 | - |
dc.identifier.citation | European Journal of Operational Research, 2020, v. 280, n. 2, p. 428-440 | - |
dc.identifier.issn | 0377-2217 | - |
dc.identifier.uri | http://hdl.handle.net/10722/327711 | - |
dc.description.abstract | The aim of this paper is to study the fast computation of the lower and upper bounds on the value function for utility maximization under the Heston stochastic volatility model with general utility functions. It is well known there is a closed form solution to the HJB equation for power utility due to its homothetic property. It is not possible to get closed form solution for general utilities and there is little literature on the numerical scheme to solve the HJB equation for the Heston model. In this paper we propose an efficient dual control Monte-Carlo method for computing tight lower and upper bounds of the value function. We identify a particular form of the dual control which leads to the closed form upper bound for a class of utility functions, including power, non-HARA and Yaari utilities. Finally, we perform some numerical tests to see the efficiency, accuracy, and robustness of the method. The numerical results support strongly our proposed scheme. | - |
dc.language | eng | - |
dc.relation.ispartof | European Journal of Operational Research | - |
dc.subject | Dual control Monte-Carlo method | - |
dc.subject | Heston stochastic volatility model | - |
dc.subject | Non-HARA and Yaari utilities | - |
dc.subject | Tight lower and upper bounds | - |
dc.subject | Utility maximization | - |
dc.title | Dual control Monte-Carlo method for tight bounds of value function under Heston stochastic volatility model | - |
dc.type | Article | - |
dc.description.nature | link_to_subscribed_fulltext | - |
dc.identifier.doi | 10.1016/j.ejor.2019.07.041 | - |
dc.identifier.scopus | eid_2-s2.0-85069957366 | - |
dc.identifier.volume | 280 | - |
dc.identifier.issue | 2 | - |
dc.identifier.spage | 428 | - |
dc.identifier.epage | 440 | - |
dc.identifier.isi | WOS:000488997700003 | - |