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A monetary value for initial information in portfolio optimization

Author

Listed:
  • Martin Schweizer

    (LMU München, Mathematisches Institut, Theresienstraße 39, 80333 München, Germany Manuscript)

  • Dirk Becherer

    (Department of Mathematics, Imperial College, 180 Queen's Gate, London SW7 2BZ, UK)

  • Jürgen Amendinger

    (HypoVereinsbank AG, International Markets, Equity Linked Products, Arabellastr. 12, 81925 München, Germany)

Abstract

We consider an investor maximizing his expected utility from terminal wealth with portfolio decisions based on the available information flow. This investor faces the opportunity to acquire some additional initial information ${\cal G}$. His subjective fair value of this information is defined as the amount of money that he can pay for ${\cal G}$ such that this cost is balanced out by the informational advantage in terms of maximal expected utility. We study this value for common utility functions in the setting of a complete market modeled by general semimartingales. The main tools are a martingale preserving change of measure and martingale representation results for initially enlarged filtrations.

Suggested Citation

  • Martin Schweizer & Dirk Becherer & Jürgen Amendinger, 2003. "A monetary value for initial information in portfolio optimization," Finance and Stochastics, Springer, vol. 7(1), pages 29-46.
    • Handle: RePEc:spr:finsto:v:7:y:2003:i:1:p:29-46
    Note: received: September 2001; final version received: March 2002
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    Citations

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    Cited by:

    1. Ankirchner, Stefan, 2005. "Utility duality under additional information: Conditional measures versus filtration enlargements," SFB 649 Discussion Papers 2005-029, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    2. Ankirchner, Stefan & Dereich, Steffen & Imkeller, Peter, 2005. "The Shannon information of filtrations and the additional logarithmic utility of insiders," SFB 649 Discussion Papers 2005-030, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    3. repec:hum:wpaper:sfb649dp2005-029 is not listed on IDEAS
    4. repec:hum:wpaper:sfb649dp2005-030 is not listed on IDEAS

    More about this item

    Keywords

    Initial enlargement of filtrations; utility maximization; value of information; martingale preserving measure; predictable representation property;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G19 - Financial Economics - - General Financial Markets - - - Other

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