Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/315286 
Year of Publication: 
2024
Citation: 
[Journal:] Annals of Operations Research [ISSN:] 1572-9338 [Volume:] 341 [Issue:] 2 [Publisher:] Springer US [Place:] New York, NY [Year:] 2024 [Pages:] 897-936
Publisher: 
Springer US, New York, NY
Abstract: 
In this paper we study optimal trading strategies in a financial market in which stock returns depend on a hidden Gaussian mean reverting drift process. Investors obtain information on that drift by observing stock returns. Moreover, expert opinions in the form of signals about the current state of the drift arriving at fixed and known dates are included in the analysis. Drift estimates are based on Kalman filter techniques. They are used to transform a power utility maximization problem under partial information into an optimization problem under full information where the state variable is the filter of the drift. The dynamic programming equation for this problem is studied and closed-form solutions for the value function and the optimal trading strategy of an investor are derived. They allow to quantify the monetary value of information delivered by the expert opinions. We illustrate our theoretical findings by results of extensive numerical experiments.
Subjects: 
Power utility maximization
Partial information
Stochastic optimal control
Kalman-Bucy filter
Expert opinions
Black-Litterman model
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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