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Information-Based Model with Noisy Anticipation and Its Application in Finance

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  • Kirati Thoednithi

    (Osaka University)

Abstract

We focus on an information-based model with noisy anticipation motivated by asset valuation problem. Precisely, the price of an asset is computed from the expectation of the totality of discounted future dividend, conditioned on the market filtration generated by (1) the current and past value of dividend, and (2) a partial information of the future cash flow stream. As a result, we obtained a new solution method to compute a generalized asset pricing formula. Moreover, under a certain condition, the formula can be reduced to a simple form, a linear combination between dividend and noisy anticipation. The approach can be applied to approximate a reasonable price of the commodities even without knowing the actual demand and supply.

Suggested Citation

  • Kirati Thoednithi, 2018. "Information-Based Model with Noisy Anticipation and Its Application in Finance," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 25(3), pages 159-177, September.
    • Handle: RePEc:kap:apfinm:v:25:y:2018:i:3:d:10.1007_s10690-018-9243-8
    DOI: 10.1007/s10690-018-9243-8
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