BFS 2002

Contributed Talk

Information neutrality in the stochastic differential utility

Ali Lazrak

This paper develops in a Brownian information setting an approach for analyzing the nonindifference for the timing of resolution of uncertainty, a question that motivates the stochastic differential utility (SDU) due to Duffie and Epstein (1992). For a class of Backward Stochastic Differential Equations (BSDEs) including SDU, we formulate the information neutrality property as an invariance principle when the filtration is coarser (or finer) and characterize this property. Furthermore, we provide a concrete example of heterogeneity in information that illustrates explicitly the neutrality property for some particular BSDEs.