Portfolio selection is vulnerable to the error-amplifying effects of combining optimization with statistical estimation and model error. For dynamic portfolio control, sources of model error include the evolution of market factors and the influence of these factors on asset returns. We develop...

We derive an explicit representation of the transitions of the Heston stochastic volatility model and use it for fast and accurate simulation of the model. Of particular interest is the integral of the variance process over an interval, conditional on the level of the variance at the endpoints....