Optimal investment with a noisy signal of future stock prices

Peter Bank and Yan Dolinsky

Papers from arXiv.org

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.

Date: 2023-02, Revised 2023-12
New Economics Papers: this item is included in nep-upt
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