Exponential Utility Maximization under Partial Information

Michael Mania () and Marina Santacroce ()

ICER Working Papers - Applied Mathematics Series from ICER - International Centre for Economic Research

Abstract: We consider the exponential utility maximization problem under partial information. The underlying asset price process follows a continuous semimartingale and strategies have to be constructed when only part of the information in the market is available. We show that this problem is equivalent to a new exponential optimization problem, which is formulated in terms of observable processes. We prove that the value process of the reduced problem is the unique solution of a backward stochastic differential equation (BSDE), which characterizes the optimal strategy. We examine two particular cases of diffusion market models, for which an explicit solution has been provided. Finally, we study the issue of suffciency of partial information.

Keywords: Backward stochastic differential equation; semimartingale market model; exponential utility maximization problem; partial information; suffcient filtration. (search for similar items in EconPapers)
JEL-codes: C61 G11 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2008-06
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.bemservizi.unito.it/repec/icr/wp2008/ICERwp24-08.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:icr:wpmath:24-2008

Access Statistics for this paper

More papers in ICER Working Papers - Applied Mathematics Series from ICER - International Centre for Economic Research Corso Unione Sovietica, 218bis - 10134 Torino - Italy. Contact information at EDIRC.
Bibliographic data for series maintained by Daniele Pennesi ().