Optimal investment with a noisy signal of future stock prices

Peter Bank; Yan Dolinsky

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arXiv · 2302.10485

Optimal investment with a noisy signal of future stock prices

Peter Bank·Yan Dolinsky

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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.

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Peter Bank, Yan Dolinsky. 2023-02-21. Optimal investment with a noisy signal of future stock prices. https://arxiv.org/abs/2302.10485

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