Vol. 12, No. 5, 2019

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The financial value of knowing the distribution of stock prices in discrete market models

Ayelet Amiran, Fabrice Baudoin, Skylyn Brock, Berend Coster, Ryan Craver, Ugonna Ezeaka, Phanuel Mariano and Mary Wishart

Vol. 12 (2019), No. 5, 883–899
Abstract

An explicit formula is derived for the value of weak information in a discrete-time model that works for a wide range of utility functions, including the logarithmic utility and power utility. We assume a complete market with a finite number of assets and a finite number of possible outcomes. Explicit calculations are performed for a binomial model with two assets.

Keywords
anticipation, mathematical finance, financial value of weak information, portfolio optimization, discrete market models, insider trading
Mathematical Subject Classification 2010
Primary: 91G10
Milestones
Received: 8 November 2018
Accepted: 26 January 2019
Published: 22 May 2019

Communicated by Jonathon Peterson
Authors
Ayelet Amiran
University of Massachusetts
Amherst, MA
United States
Fabrice Baudoin
University of Connecticut
Storrs, CT
United States
Skylyn Brock
Colorado Mesa University
Grand Junction, CO
United States
Berend Coster
University of Connecticut
Storrs, CT
United States
Ryan Craver
University of Maryland
College Park, MD
United States
Ugonna Ezeaka
University of Massachusetts
Amherst, MA
United States
Phanuel Mariano
Purdue University
West Lafayette, IN
United States
Mary Wishart
Eastern Connecticut State University
Willimantic, CT
United States