Optimal trading strategy for an investor: the case of partial information
AbstractWe shall address here the optimization problem of an investor who wants to maximize the expected utility from terminal wealth. The novelty of this paper is that the drift process and the driving Brownian motion appearing in the stochastic differential equation for the security prices are not assumed to be observable for investors in the market. Investors observe security prices and interest rates only. The drift process will be modelled by a Gaussian process, which in a special case becomes a multi-dimensional mean-reverting Ornstein-Uhlenbeck process. The main result of the paper is an explicit representation for the optimal trading strategy for a wide range of utility functions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Stochastic Processes and their Applications.
Volume (Year): 76 (1998)
Issue (Month): 1 (August)
Contact details of provider:
Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/505572/description#description
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Detemple, Jerome B., 1991. "Further results on asset pricing with incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 15(3), pages 425-453, July.
- Cox, John C. & Huang, Chi-fu, 1989. "Optimal consumption and portfolio policies when asset prices follow a diffusion process," Journal of Economic Theory, Elsevier, vol. 49(1), pages 33-83, October.
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-84, March.
- Lakner, Peter, 1995. "Utility maximization with partial information," Stochastic Processes and their Applications, Elsevier, vol. 56(2), pages 247-273, April.
- Dothan, Michael U & Feldman, David, 1986. " Equilibrium Interest Rates and Multiperiod Bonds in a Partially Observable Economy," Journal of Finance, American Finance Association, vol. 41(2), pages 369-82, June.
- Darrell Duffie & William Zame, 1988.
"The Consumption-Based Capital Asset Pricing Model,"
88-10, University of Copenhagen. Department of Economics.
- Wolfgang Putschögl & Jörn Sass, 2008. "Optimal consumption and investment under partial information," Decisions in Economics and Finance, Springer, vol. 31(2), pages 137-170, November.
- Albina Danilova & Michael Monoyios & Andrew Ng, 2009. "Optimal investment with inside information and parameter uncertainty," Papers 0911.3117, arXiv.org, revised Feb 2010.
- Huang, Jianhui & Wang, Guangchen & Wu, Zhen, 2010. "Optimal premium policy of an insurance firm: Full and partial information," Insurance: Mathematics and Economics, Elsevier, vol. 47(2), pages 208-215, October.
- Covello, D. & Santacroce, M., 2010. "Power utility maximization under partial information: Some convergence results," Stochastic Processes and their Applications, Elsevier, vol. 120(10), pages 2016-2036, September.
- Jianjun Miao, .
"Ambiguity, Risk and Portfolio Choice under Incomplete Information,"
Boston University - Department of Economics - Working Papers Series
wp2009-019, Boston University - Department of Economics.
- Jianjun Miao, 2009. "Ambiguity, Risk and Portfolio Choice under Incomplete Information," Annals of Economics and Finance, Society for AEF, vol. 10(2), pages 257-279, November.
- Liu, Hening, 2011. "Dynamic portfolio choice under ambiguity and regime switching mean returns," Journal of Economic Dynamics and Control, Elsevier, vol. 35(4), pages 623-640, April.
- Michael Boguslavsky & Elena Boguslavskaya, 2003. "Optimal Arbitrage Trading," Finance 0309012, EconWPA.
- Becheri, I.G., 2012. "Limiting experiments for panel-data and jump-diffusion models," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5661649, Tilburg University.
- R\"udiger Frey & Abdelali Gabih & Ralf Wunderlich, 2013. "Portfolio Optimization under Partial Information with Expert Opinions: a Dynamic Programming Approach," Papers 1303.2513, arXiv.org, revised Feb 2014.
- Michael Mania & Marina Santacroce, 2010. "Exponential utility maximization under partial information," Finance and Stochastics, Springer, vol. 14(3), pages 419-448, September.
- Xiang Yu, 2011. "An Explicit Example Of Optimal Portfolio-Consumption Choices With Habit Formation And Partial Observations," Papers 1112.2939, arXiv.org, revised Aug 2012.
- Jinqiang Yang & Zhaojun Yang, 2012. "Consumption Utility-Based Pricing and Timing of the Option to Invest with Partial Information," Computational Economics, Society for Computational Economics, vol. 39(2), pages 195-217, February.
- Liang, Zhibin & Yuen, Kam Chuen & Guo, Junyi, 2011. "Optimal proportional reinsurance and investment in a stock market with Ornstein-Uhlenbeck process," Insurance: Mathematics and Economics, Elsevier, vol. 49(2), pages 207-215, September.
- Michael Mania & Marina Santacroce, 2008. "Exponential Utility Maximization under Partial Information," ICER Working Papers - Applied Mathematics Series 24-2008, ICER - International Centre for Economic Research.
- Yao, Jing & Li, Duan, 2013. "Bounded rationality as a source of loss aversion and optimism: A study of psychological adaptation under incomplete information," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 18-31.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.