Title: The long-run excess optimal power utility of an informed investor and its approximation

Authors: Winston S. Buckley

Addresses: Division of Actuarial Science and Computational Finance, University of Technology, 237 Old Hope Road, Kingston 6, Jamaica

Abstract: We derive the mean, variances and variance bounds of optimal portfolios of informed and uninformed investors having power preference as presented in Buckley et al. (2012). In contrast, we give direct (non-log-linear) alternative representations of the optimal expected utilities and excess optimal utility of the informed investor in the long-run. We also present a new approximation for the excess optimal utility of the informed investor when the relative risk aversion is close to 1. Our approximation of the excess utility is slightly larger but nests that which is presented in prior studies.

Keywords: mean; variances; optimal portfolios; optimal utility; excess utility; optimal power utility; informed investors; power preference; risk aversion; asymmetric information; mispricing; long-term investment.

DOI: 10.1504/IJOR.2015.069181

International Journal of Operational Research, 2015 Vol.23 No.2, pp.131 - 144

Available online: 29 Apr 2015 *

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