Portfolio problem for the α −hypergeometric stochastic volatility model with consumption

This paper solves the finite horizon optimal consumption-investment problem for an investor that trades in the α −hypergeometric stochastic volatility model, with preferences based on a power utility function. To find the optimal strategy, we follow the dynamic programming approach. First, we perform a suitable change of variables in order to fully transform the non-linear Hamilton-Jacobi-Bellman (HJB) equation into a semilinear one. Next, we apply the Girsanov theorem to deduce an implicit Feynman-Kac formula depending upon the volatility process. The operator defined by the Feynman-Kac representation is shown to be a contraction operator on a designed function space. Finally, the Banach fixed point theorem yields the existence of a solution to the HJB equation in the designed space. Moreover, we apply a verification theorem to guarantee that the solution of the HJB equation coincides with the value function.