Multiscale Stochastic Volatility Problem with Wavelet Risk Premium

B O Osu; C Olunkwa; M E Egwe amd F N Chuku

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Multiscale Stochastic Volatility Problem with Wavelet Risk Premium

Abstract

B O Osu, C Olunkwa, M E Egwe amd F N Chuku

In this paper, the mean variance portfolio with multiscale stochastic volatility using the wavelet risk premium was considered. A seemingly wavelet function which was used to investigate the multiscale stochastic volatility (MSSV) used in stock price model was derived. Two types of volatility, namely; a fast -moving one and a slowly-moving one were considered using the stochastic dynamic programming principle and Hamilton-Jacobi-Bellman equation approach. The optimal investment strategy, the value function was obtained.

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