Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
480067 | European Journal of Operational Research | 2012 | 9 Pages |
We extend the theory of asymmetric information in mispricing models for stocks following geometric Brownian motion to constant relative risk averse investors. Mispricing follows a continuous mean-reverting Ornstein–Uhlenbeck process. Optimal portfolios and maximum expected log-linear utilities from terminal wealth for informed and uninformed investors are derived. We obtain analogous but more general results which nests those of Guasoni (2006) as a special case of the relative risk aversion approaching one.
► We extend the theory of asymmetric information in mispricing models. ► Stock prices follows geometric Brownian motion. ► Mispricing follows a continuous mean-reverting Ornstein–Uhlenbeck process. ► Informed and uninformed investors have constant relative risk averse preferences. ► Optimal portfolios and maximum expected log-linear utilities are derived.