Portfolio Optimization Under Partial Information With Expert Opinions
AbstractThis paper investigates optimal portfolio strategies in a market with partial information on the drift. The drift is modelled as a function of a continuous-time Markov chain with finitely many states which is not directly observable. Information on the drift is obtained from the observation of stock prices. Moreover, expert opinions in the form of signals at random discrete time points are included in the analysis. We derive the filtering equation for the return process and incorporate the filter into the state variables of the optimization problem. This problem is studied with dynamic programming methods. In particular, we propose a policy improvement method to obtain computable approximations of the optimal strategy. Numerical results are presented at the end.
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Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.
Volume (Year): 15 (2012)
Issue (Month): 01 ()
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Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml
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- Abdelali Gabih & Hakam Kondakji & J\"orn Sass & Ralf Wunderlich, 2014. "Expert Opinions and Logarithmic Utility Maximization in a Market with Gaussian Drift," Science & Finance (CFM) working paper archive 1402.6313, Science & Finance, Capital Fund Management.
- R\"udiger Frey & Abdelali Gabih & Ralf Wunderlich, 2013. "Portfolio Optimization under Partial Information with Expert Opinions: a Dynamic Programming Approach," Science & Finance (CFM) working paper archive 1303.2513, Science & Finance, Capital Fund Management, revised Feb 2014.
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