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Quantifying the value of initial investment information

Author

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  • Amendinger, Jürgen
  • Becherer, Dirk
  • Schweizer, Martin

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 G.. The subjective fair value of this information for the investor is defined as the amount of money that he can pay for G such that this cost is balanced out by the informational advantage in terms of maximal expected utility. We calculate this value for common utility functions in the setting of a complete market modeled by general semimartingales. The main tools are results of independent interest, namely a martingale preserving change of measure and a martingale representation theorem for initially enlarged filtrations.

Suggested Citation

  • Amendinger, Jürgen & Becherer, Dirk & Schweizer, Martin, 2000. "Quantifying the value of initial investment information," SFB 373 Discussion Papers 2000,41, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    • Handle: RePEc:zbw:sfb373:200041
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    Citations

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    Cited by:

    1. Baudoin, Fabrice, 0. "Conditioned stochastic differential equations: theory, examples and application to finance," Stochastic Processes and their Applications, Elsevier, vol. 100(1-2), pages 109-145, July.
    2. Peter Imkeller, 2003. "Malliavin's Calculus in Insider Models: Additional Utility and Free Lunches," Mathematical Finance, Wiley Blackwell, vol. 13(1), pages 153-169, January.

    More about this item

    Keywords

    utility maximization; value of information; initial enlargement of filtrations; Martingale preserving measure; predietable representation property;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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