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Optimal investment under partial information
Stockholm School of Economics.
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.), Mathematical Statistics.
2010 (English)In: Mathematical Methods of Operations Research, ISSN 1432-2994, E-ISSN 1432-5217, Vol. 71, no 2, 371-399 p.Article in journal (Refereed) Published
Abstract [en]

We consider the problem of maximizing terminal utility in a model where asset prices are driven by Wiener processes, but where the various rates of returns are allowed to be arbitrary semimartingales. The only information available to the investor is the one generated by the asset prices and, in particular, the return processes cannot be observed directly. This leads to an optimal control problem under partial information and for the cases of power, log, and exponential utility we manage to provide a surprisingly explicit representation of the optimal terminal wealth as well as of the optimal portfolio strategy. This is done without any assumptions about the dynamical structure of the return processes. We also show how various explicit results in the existing literature are derived as special cases of the general theory.

Place, publisher, year, edition, pages
2010. Vol. 71, no 2, 371-399 p.
Keyword [en]
Portfolio, Optimal control, Filtering, Partial information, Stochastic, control, Partial observations, Investment, partially observable economy, portfolio optimization, interest-rates, incomplete information, parameter uncertainty, utility maximization, drift process, choice
National Category
Computational Mathematics
URN: urn:nbn:se:kth:diva-19321DOI: 10.1007/s00186-010-0301-xISI: 000275754800008ScopusID: 2-s2.0-77952954806OAI: diva2:337368
QC 20100525Available from: 2010-08-05 Created: 2010-08-05 Last updated: 2012-02-17Bibliographically approved

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Björk, TomasLanden, Camilla
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