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The financial value of knowing the distribution of stock prices in discrete market models

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Listed:
  • Ayelet Amiran
  • Fabrice Baudoin
  • Skylyn Brock
  • Berend Coster
  • Ryan Craver
  • Ugonna Ezeaka
  • Phanuel Mariano
  • Mary Wishart

Abstract

An explicit formula is derived for the value of weak information in a discrete time model that works for a wide range of utility functions including the logarithmic and power utility. We assume a complete market with a finite number of assets and a finite number of possible outcomes. Explicit calculations are performed for a binomial model with two assets. The case of trinomial models is also discussed.

Suggested Citation

  • Ayelet Amiran & Fabrice Baudoin & Skylyn Brock & Berend Coster & Ryan Craver & Ugonna Ezeaka & Phanuel Mariano & Mary Wishart, 2018. "The financial value of knowing the distribution of stock prices in discrete market models," Papers 1808.03186, arXiv.org.
    • Handle: RePEc:arx:papers:1808.03186
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    References listed on IDEAS

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    1. Fabrice Baudoin & Laurent Nguyen-Ngoc, 2004. "The financial value of a weak information on a financial market," Finance and Stochastics, Springer, vol. 8(3), pages 415-435, August.
    2. Donald Meyer & Jack Meyer, 2005. "Relative Risk Aversion: What Do We Know?," Journal of Risk and Uncertainty, Springer, vol. 31(3), pages 243-262, December.
    3. Miklos Rasonyi & Lukasz Stettner, 2005. "On utility maximization in discrete-time financial market models," Papers math/0505243, arXiv.org.
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