Optimal Investment with a Noisy Signal of Future Stock Prices

Peter Bank*, Yan Dolinsky

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

We consider an investor who is dynamically informed about the future evolution of one of the independent Brownian motions driving a stock’s price fluctuations. With linear temporary price impact the resulting optimal investment problem with exponential utility turns out to be not only well posed, but it even allows for a closed-form solution. We describe this solution and the resulting problem value for this stochastic control problem with partial observation by solving its convex-analytic dual problem.

Original languageAmerican English
Article number35
JournalApplied Mathematics and Optimization
Volume89
Issue number2
DOIs
StatePublished - Apr 2024

Bibliographical note

Publisher Copyright:
© 2024, The Author(s).

Keywords

  • Duality
  • Exponential utility maximization
  • Noisy price signals
  • Optimal control with partial observation
  • Temporary price impact

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