BSDE Approach to Utility Maximization with Square-Root Factor Processes
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We consider the utility-based portfolio selection problem in a continuous-time setting. We assume the market price of risk depends on a stochastic factor that satisfies an affine-form, square-root, Markovian model. This financial market framework includes the classical geometric Brownian motion, CEV model, and Heston’s model as special cases. Adopting the BSDE approach, we obtain closed-form solutions for the optimal portfolio strategies and value functions for the logarithmic, power, and exponential utility functions.
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Hongcan Lin, David Saunders, Chengguo Weng (2020). BSDE Approach to Utility Maximization with Square-Root Factor Processes. UWSpace. http://hdl.handle.net/10012/20090