Robust portfolio optimization with multi-factor stochastic volatility (Q779874)

The paper provides a study of the robust portfolio optimization problem with multi-factor stochastic volatility. The authors consider only one risky asset, but with a multi-factor volatility structure whose components may be correlated. In addition, they also consider the robust portfolio selection problem in the presence of jump risk. A highlight of the paper is the study of the impact of the correlation between volatility factors in the context of robust portfolio optimization. The correlation is considered being able to capture the evolution of correlation between asset returns or multivariate volatilities. Unlike the independent volatilities case, the nonaffine structure of volatility with correlated factors rules out the possibility of finding a closed-form solution. However, the inclusion of correlated volatility processes still adds value to the existing research of robust portfolio optimization problems. In particular, the analytical solutions of the optimal and suboptimal investment strategies for the worst-case measure in complete and incomplete markets and for the case of asset price with jump risks are presented.