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

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 and power utility. We assume a complete market with a finite number of assets and a finite number of possible outcomes. Explicit calcul...

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Bibliographic Details
Published in:arXiv.org 2018-08
Main Authors: Amiran, Ayelet, Baudoin, Fabrice, Brock, Skylyn, Coster, Berend, Craver, Ryan, Ezeaka, Ugonna, Phanuel Mariano, Wishart, Mary
Format: Article
Language:English
Subjects:
Markets
Pricing
Stock prices
Online Access:Get full text
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Summary: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 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. The case of trinomial models is also discussed.
ISSN:2331-8422
DOI:10.48550/arxiv.1808.03186