Asymptotic filter behavior for high-frequency expert opinions in a market with Gaussian drift

DOI10.1080/15326349.2020.1758567MaRDI QIDQ4988558zbMATH OpenOpenAlexFDO

Authors Abdelali Gabih, Hakam Kondakji, R. Wunderlich

Publication date 17 May 2021

Published in Stochastic Models (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1812.03453

zbMATH Keywords

Bayesian updatingBlack-Litterman modelexpert opinionsKalman filterOrnstein-Uhlenbeck processpartial information

Mathematics Subject Classification ID

Functional limit theorems; invariance principles (60F17) Signal detection and filtering (aspects of stochastic processes) (60G35) Financial markets (91G15)

Abstract: This paper investigates a financial market where stock returns depend on a hidden Gaussian mean reverting drift process. Information on the drift is obtained from returns and expert opinions in the form of noisy signals about the current state of the drift arriving at the jump times of a homogeneous Poisson process. Drift estimates are based on Kalman filter techniques and described by the conditional mean and covariance matrix of the drift given the observations. We study the filter asymptotics for increasing arrival intensity of expert opinions and prove that the conditional mean is a consistent drift estimator, it converges in the mean-square sense to the hidden drift. Thus, in the limit as the arrival intensity goes to infinity investors have full information about the drift.

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Cites work

• Comparison and robustification of Bayes and Black-Litterman models
• Expert opinions and logarithmic utility maximization for multivariate stock returns with Gaussian drift
• Financial Modelling with Jump Processes
• scientific article; zbMATH DE number 1546853 (Why is no real title available?)
• Optimal consumption and investment under partial information
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Cited in

(5)

• Diffusion approximations for randomly arriving expert opinions in a financial market with Gaussian drift
• Expert opinions and logarithmic utility maximization for multivariate stock returns with Gaussian drift
• Diffusion approximations for periodically arriving expert opinions in a financial market with Gaussian drift
• Power utility maximization with expert opinions at fixed arrival times in a market with hidden Gaussian drift
• Convergence of the extended Kalman filter with small and state-dependent noise

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