Optimal consumption and investment strategies with partial and private information in a multi-asset setting

DOI10.1007/S11579-012-0086-1MaRDI QIDQ2392018zbMATH OpenOpenAlexFDO

Authors S. L. Hansen

Publication date 6 August 2013

Published in Mathematics and Financial Economics (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/s11579-012-0086-1

zbMATH Keywords

filtering problemoptimal consumptionpartial informationprivate informationutility function

Mathematics Subject Classification ID

Inference from stochastic processes and prediction (62M20) Utility theory (91B16) Portfolio theory (91G10) Financial applications of other theories (91G80) Optimal stochastic control (93E20)

Review text

The author studies the value of having the private information about stock returns (instantaneous or long-run) in a financial market with incomplete information about the expected returns of \(n\) assets. The mathematical framework for coping with partial and private information, applied in the paper, is based on filtering theory developed by \textit{R. S. Lipster} and \textit{A. N. Shiryaev} in their book [Statistics of random processes. 1: General theory. Berlin: Springer (2001; Zbl 1008.62072)], and the problem amounts to estimating the market price of risk vector from observations of the stock price processes and additional signals. Then the usual techniques for solving the optimal consumption and investment problem are applied. The obtained solutions to the optimization problems of informed and uniformed investors, derived analytically, turn out to be structurally identical, even though the two types of signals can give very difficult results. The interplay between partial and private information is illustrated by a numerical example showing that information acquisition is more important for long-term investors and the ones acting in a very uncertain market.

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Cited in

(10)

• A non-zero-sum reinsurance-investment game with delay and asymmetric information
• Optimal retirement planning under partial information
• Robust optimal investment and reinsurance for an insurer with inside information
• Strategic investment and learning with private information
• Optimal consumption-investment under partial information in conditionally log-Gaussian models
• Consumption/investment problem when the investment opportunity set can be enlarged by information gathering
• A deep learning algorithm for optimal investment strategies under Merton's framework
• Expected utility maximization for an insurer with investment and risk control under inside information
• A Stackelberg reinsurance-investment game with asymmetric information and delay
• Deep learning solution of optimal reinsurance-investment strategies with inside information and multiple risks

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