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Portfolio Optimization under Partial Information with Expert Opinions

Frey, Rüdiger and Gabih, Abdelali and Wunderlich, Ralf (2012) Portfolio Optimization under Partial Information with Expert Opinions. International Journal of Theoretical and Applied Finance, 15 (1). pp. 1-18. ISSN 0219-0249

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Abstract

This paper investigates optimal portfolio strategies in a market with partial information on the drift. The drift is modelled as a function of a continuous-time Markov chain with finitely many states which is not directly observable. Information on the drift is obtained from the observation of stock prices. Moreover, expert opinions in the form of signals at random discrete time points are included in the analysis. We derive the filtering equation for the return process and incorporate the filter into the state variables of the optimization problem. This problem is studied with dynamic programming methods. In particular, we propose a policy improvement method to obtain computable approximations of the optimal strategy. Numerical results are presented at the end. (author's abstract)

Item Type: Article
Additional Information: This is an open access article, which means that it can be freely redistributed and reused (http://www.worldscientific.com/page/open).
Keywords: portfolio optimization / hidden Markov model / dynamic programming
Divisions: Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Version of the Document: Published
Depositing User: ePub Administrator
Date Deposited: 05 Apr 2013 13:28
Last Modified: 01 Apr 2015 15:32
Related URLs:
FIDES Link: https://bach.wu.ac.at/d/research/results/58074/
URI: http://epub.wu.ac.at/id/eprint/3844

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