A comparative analysis of the value of information in a continuous time market model with partial information: the cases of log-utility and CRRA

Yang, Z., Ewald, C.-O. and Wang, W.-K. (2011) A comparative analysis of the value of information in a continuous time market model with partial information: the cases of log-utility and CRRA. Journal of Probability and Statistics, 2011(238623), (doi: 10.1155/2011/238623)

Abstract

We study the question what value an agent in a generalized Black-Scholes model with partial information attributes to the complementary information. To do this, we study the utility maximization problems from terminal wealth for the two cases partial information and full information. We assume that the drift term of the risky asset is a dynamic process of general linear type and that the two levels of observation correspond to whether this drift term is observable or not. Applying methods from stochastic filtering theory we derive an analytical tractable formula for the value of information in the case of logarithmic utility. For the case of constant relative risk aversion (CRRA) we derive a semianalytical formula, which uses as an input the numerical solution of a system of ODEs. For both cases we present a comparative analysis.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Ewald, Professor Christian
• Authors: Yang, Z., Ewald, C.-O., and Wang, W.-K.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Journal of Probability and Statistics
• Publisher: Hindawi Publishing Corporation
• ISSN: 1687-952X
• ISSN (Online): 1687-9538
• Copyright Holders: Copyright © 2011 The Authors
• First Published: First published in Journal of Probability and Statistics 2011:238623
• Publisher Policy: Reproduced under a Creative Commons Licence