Optimizing the terminal wealth under partial information: The drift process as a continuous time Markov chain
AbstractWe consider a multi-stock market model where prices satisfy a stochastic differential equation with instantaneous rates of return modeled as a continuous time Markov chain with finitely many states. Partial observation means that only the prices are observable. For the investor’s objective of maximizing the expected utility of the terminal wealth we derive an explicit representation of the optimal trading strategy in terms of the unnormalized filter of the drift process, using HMM filtering results and Malliavin calculus. The optimal strategy can be determined numerically and parameters can be estimated using the EM algorithm. The results are applied to historical prices. Copyright Springer-Verlag Berlin/Heidelberg 2004
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Springer in its journal Finance and Stochastics.
Volume (Year): 8 (2004)
Issue (Month): 4 (November)
Contact details of provider:
Web page: http://www.springerlink.com/content/101164/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Björk, Tomas & Davis, Mark H.A. & Landén, Camilla, 2010. "Optimal Investment under Partial Information," Working Paper Series in Economics and Finance 739, Stockholm School of Economics.
- Watanabe, Yûsuke, 2013. "Asymptotic analysis for a downside risk minimization problem under partial information," Stochastic Processes and their Applications, Elsevier, vol. 123(3), pages 1046-1082.
- Agostino Capponi & Jose Enrique Figueroa Lopez & Andrea Pascucci, 2013. "Dynamic Credit Investment in Partially Observed Markets," Papers 1303.2950, arXiv.org, revised Jun 2014.
- Abdelali Gabih & Hakam Kondakji & J\"orn Sass & Ralf Wunderlich, 2014. "Expert Opinions and Logarithmic Utility Maximization in a Market with Gaussian Drift," Papers 1402.6313, arXiv.org.
- 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.
- 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.
- Özge Alp & Ralf Korn, 2011. "Continuous-time mean-variance portfolio optimization in a jump-diffusion market," Decisions in Economics and Finance, Springer, vol. 34(1), pages 21-40, May.
- Liang, Zhibin & Bayraktar, Erhan, 2014. "Optimal reinsurance and investment with unobservable claim size and intensity," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 156-166.
- Eckhard Platen & Wolfgang Runggaldier, 2007.
"A Benchmark Approach to Portfolio Optimization under Partial Information,"
Asia-Pacific Financial Markets,
Springer, vol. 14(1), pages 25-43, March.
- Eckhard Platen & Wolfgang Runggaldier, 2007. "A Benchmark Approach to Portfolio Optimization under Partial Information," Research Paper Series 191, Quantitative Finance Research Centre, University of Technology, Sydney.
- Thomas Lim & Marie-Claire Quenez, 2010. "Portfolio optimization in a default model under full/partial information," Papers 1003.6002, arXiv.org, revised Nov 2013.
- Jörn Sass & Ralf Wunderlich, 2010. "Optimal portfolio policies under bounded expected loss and partial information," Computational Statistics, Springer, vol. 72(1), pages 25-61, August.
- Tomas Björk & Mark Davis & Camilla Landén, 2010. "Optimal investment under partial information," Computational Statistics, Springer, vol. 71(2), pages 371-399, April.
- Elliott, Robert J. & Siu, Tak Kuen & Badescu, Alex, 2010. "On mean-variance portfolio selection under a hidden Markovian regime-switching model," Economic Modelling, Elsevier, vol. 27(3), pages 678-686, May.
- Markus Hahn & Sylvia Frühwirth-Schnatter & Jörn Sass, 2009. "Estimating models based on Markov jump processes given fragmented observation series," AStA Advances in Statistical Analysis, Springer, vol. 93(4), pages 403-425, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.