Performance analysis of the optimal strategy under partial information
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Abstract: The question addressed in this paper is the performance of the optimal strategy, and the impact of partial information. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein-Uhlenbeck process. We focus on the optimal strategy with a logarithmic utility function under full or partial information. For both cases, we provide the asymptotic expectation and variance of the logarithmic return as functions of the signal-to-noise ratio and of the trend mean reversion speed. Finally, we compare the asymptotic Sharpe ratios of these strategies in order to quantify the loss of performance due to partial information.
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Cites work
- Bayesian adaptive portfolio optimization
- Forecasting trends with asset prices
- scientific article; zbMATH DE number 3567644 (Why is no real title available?)
- Introduction to Time Series and Forecasting
- Optimal investment under partial information
- Optimal trading strategy for an investor: the case of partial information
- Optimizing the terminal wealth under partial information: the drift process as a continuous time Markov chain
- Portfolio optimization with unobservable Markov-modulated drift process
- Portfolio selection under incomplete information
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