High-frequency expert opinions and power utility maximization in a market with Gaussian drift

In a continuous-time financial market with partial information on the drift we solve utility maximization problems which include expert opinions on the unobservable drift modelled by an Ornstein Uhlenbeck process. For... [ view full abstract ]

In a continuous-time financial market with partial information on the drift we solve utility maximization problems which include expert opinions on the unobservable drift modelled by an Ornstein Uhlenbeck process. For improving drift estimates and expected utility investors  also rely on expert opinions providing a noisy estimate of the current state of the drift. That  procedure can be seen as a continuous-time version of the classical Black-Litterman approach.

For solving a portfolio problem for  power utility we apply dynamic programming techniques. Diffusion approximations for high-frequency discrete-time experts allow to simplify the problem and to derive more explicit solutions.