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The financial value of knowing the distribution of stock prices in discrete market models. (English) Zbl 1431.91374

Much of the research into the financial value of information has been in a continuous context. This article explores the topic in a discrete setting. The authors consider the expected utility rather than expected wealth. They concentrate on three different utility functions: log, power, and exponential functions.
A definition of the financial value of weak information is provided in terms of expected utility. Assuming a complete market, an expression for this measure is given as the main result of the article. The methodology is then exemplified in a binomial model of two assets.

MSC:

91G15 Financial markets
91G10 Portfolio theory
91B16 Utility theory
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References:

[1] 10.1007/978-3-540-44859-4_2
[2] 10.1007/s00780-003-0116-1 · Zbl 1064.60082
[3] 10.1016/0304-4068(89)90018-9 · Zbl 0675.90012
[4] 10.1137/0329039 · Zbl 0733.93085
[5] 10.1007/s11166-005-5102-x · Zbl 1125.91315
[6] 10.1214/105051605000000089 · Zbl 1137.93423
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