PERFORMANCE ANALYSIS OF THE OPTIMAL STRATEGY UNDER PARTIAL INFORMATION

Ahmed Bel Hadj Ayed (), Grégoire Loeper, Sofiene El Aoud and Frédéric Abergel
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Ahmed Bel Hadj Ayed: BNP Paribas Global Markets, Paris, France
Grégoire Loeper: School of Mathematical Sciences, Monash University, Victoria, Australia
Sofiene El Aoud: Chaire of quantitative finance, laboratory MICS, CentraleSupélec, Châtenay-Malabry, France
Frédéric Abergel: Chaire of quantitative finance, laboratory MICS, CentraleSupélec, Châtenay-Malabry, France

International Journal of Theoretical and Applied Finance (IJTAF), 2017, vol. 20, issue 02, 1-21

Abstract: The question addressed in this paper is the performance of the optimal strategy, and the impact of partial information. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein–Uhlenbeck process. We focus on the optimal strategy with a logarithmic utility function under full or partial information. For both cases, we provide the asymptotic expectation and variance of the logarithmic return as functions of the signal-to-noise ratio and of the trend mean reversion speed. Finally, we compare the asymptotic Sharpe ratios of these strategies in order to quantify the loss of performance due to partial information.

Keywords: Optimal trading strategy; partial observation; Sharpe ratio; stochastic calculus (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S0219024917500169

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