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Portfolio selection under incomplete information

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  • Brendle, Simon

Abstract

We study an optimal investment problem under incomplete information and power utility. We analytically solve the Bellman equation, and identify the optimal portfolio policy. Moreover, we compare the solution to the value function in the fully observable case, and quantify the loss of utility due to incomplete information.

Suggested Citation

  • Brendle, Simon, 2006. "Portfolio selection under incomplete information," Stochastic Processes and their Applications, Elsevier, vol. 116(5), pages 701-723, May.
    • Handle: RePEc:eee:spapps:v:116:y:2006:i:5:p:701-723
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    References listed on IDEAS

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    1. Lakner, Peter, 1998. "Optimal trading strategy for an investor: the case of partial information," Stochastic Processes and their Applications, Elsevier, vol. 76(1), pages 77-97, August.
    2. Brennan, Michael J & Xia, Yihong, 2001. "Assessing Asset Pricing Anomalies," The Review of Financial Studies, Society for Financial Studies, vol. 14(4), pages 905-942.
    3. Kim, Tong Suk & Omberg, Edward, 1996. "Dynamic Nonmyopic Portfolio Behavior," The Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 141-161.
    4. Benes, Václav E. & Karatzas, Ioannis, 1983. "Estimation and control for linear, partially observable systems with non-gaussian initial distribution," Stochastic Processes and their Applications, Elsevier, vol. 14(3), pages 233-248, March.
    5. Gady Zohar, 2001. "A Generalized Cameron–Martin Formula with Applications to Partially Observed Dynamic Portfolio Optimization," Mathematical Finance, Wiley Blackwell, vol. 11(4), pages 475-494, October.
    6. Lakner, Peter, 1995. "Utility maximization with partial information," Stochastic Processes and their Applications, Elsevier, vol. 56(2), pages 247-273, April.
    7. M. J. Brennan, 1998. "The Role of Learning in Dynamic Portfolio Decisions," Review of Finance, European Finance Association, vol. 1(3), pages 295-306.
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