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Optimal Trading Strategy With Partial Information And The Value Of Information: The Simplified And Generalized Models

Author

Listed:
  • ZHAOJUN YANG

    (Postdoc's Working Station in Mathematics of Hunan University, Changsha, 410082, P.R. China)

  • CHAOQUN MA

    (International Business School of Hunan University, Changsha, 410082, P.R. China)

Abstract

In this paper we deal with the optimization problem of maximizing the expected total utility from consumption under the case of partial information. By means of the martingale method and filter theory, we have acquired an explicit solution to optimal investment and consumption determined by the security prices for a special security price process. Furthermore, we establish a simple formula for valuing information, provided that the utility function is logarithmic. In the end, we extend most of the conclusions to a general situation where both the interest rate and dispersion coefficient of risk security follow some stochastic processes.

Suggested Citation

  • Zhaojun Yang & Chaoqun Ma, 2001. "Optimal Trading Strategy With Partial Information And The Value Of Information: The Simplified And Generalized Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 4(05), pages 759-772.
    • Handle: RePEc:wsi:ijtafx:v:04:y:2001:i:05:n:s0219024901001231
    DOI: 10.1142/S0219024901001231
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    Citations

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    Cited by:

    1. Song, Dandan & Wang, Huamao & Yang, Zhaojun, 2014. "Learning, pricing, timing and hedging of the option to invest for perpetual cash flows with idiosyncratic risk," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 1-11.
    2. Dandan Song & Zhaojun Yang, 2014. "Utility-Based Pricing, Timing and Hedging of an American Call Option Under an Incomplete Market with Partial Information," Computational Economics, Springer;Society for Computational Economics, vol. 44(1), pages 1-26, June.
    3. Jinqiang Yang & Zhaojun Yang, 2012. "Consumption Utility-Based Pricing and Timing of the Option to Invest with Partial Information," Computational Economics, Springer;Society for Computational Economics, vol. 39(2), pages 195-217, February.

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