Optimal portfolio with insider information on the stochastic interest rate

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dc.contributor.author D'Auria, Bernardo
dc.contributor.author García Martí, Dolores
dc.contributor.author Salmeron Garrido, Jose Antonio
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Estadística
dc.date.accessioned 2017-11-14T13:34:18Z
dc.date.available 2017-11-14T13:34:18Z
dc.date.issued 2017-11-01
dc.identifier.issn 2387-0303
dc.identifier.uri http://hdl.handle.net/10016/25819
dc.description.abstract We consider the optimal portfolio problem where the interest rate is stochastic and the agent has insider information on its value at a finite terminal time. The agent's objective is to optimize the terminal value of herportfolio under a logarithmic utility function. Using techniques of initial enlargement of filtration, we identify the optimal strategy and compute the value of the information. The interest rate is first assumed to be an affine diffusion, then more explicit formulas are computed for the Vasicek interest rate model where the interest rate moves according to an Ornstein-Uhlenbeck process. We show that when the interest rate process is correlated with the price process of the risky asset, the value of the information is infinite, as is usually the case for initial-enlargement-type problems. However, since the agent does not know exactly the correlation factor, this may induce an infinite loss instead of an infinite gain. Finally weakening the information own by the agent, and assuming that she only knows a lower-bound for the terminal value of the interest rate process, we show that the value of the information is finite.
dc.description.sponsorship The first author acknowledge financial support from the Spanish Ministry of Education and Science, research projects MTM2015– 72907–EXP and MTM2013–42104–P (via FEDER funds).
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries UC3M Working papers. Statistics and Econometrics
dc.relation.ispartofseries 17-17
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Optimal portfolio
dc.subject.other Enlargement of filtrations
dc.subject.other Vasicek interest rate model
dc.subject.other Value of the information
dc.title Optimal portfolio with insider information on the stochastic interest rate
dc.type workingPaper
dc.subject.jel G11
dc.subject.jel G12
dc.subject.jel G14
dc.relation.projectID Gobierno de España. MTM2015-72907-EXP
dc.relation.projectID Gobierno de España. MTM2013-42104-P
dc.type.version draft
dc.identifier.uxxi DT/0000001591
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