Target-based investment for long-term investors under stochastic volatility

We investigate the impact of stochastic volatility on target-based investment strategies. We compare the results under CRRA risk preference and SAHARA risk preference. By setting a positive reference level under SAHARA risk preference, investors tend to be highly risk averse around the reference level, which leads investors towards target-based investment strategies, and therefore leads to a distribution that is more centered around the reference level. We show that the target-based investment strategies are less sensitive to the value of the diffusive volatility risk premium than CRRA-based investment strategies. This is especially useful when it is difficult to estimate the
value of diffusive volatility risk premium.