  In financial markets valuable information is rarely circulated homogeneously,
because of time required for information to spread. However, advances in
communication technology means that the 'lifetime' of important information is
typically short. Hence, viewed as a tradable asset, information shares the
characteristics of a perishable commodity: while it can be stored and
transmitted freely, its worth diminishes rapidly in time. In view of recent
developments where internet search engines and other information providers are
offering information to financial institutions, the problem of pricing
information is becoming increasingly important. With this in mind, a new
formulation of utility-indifference argument is introduced and used as a basis
for pricing information. Specifically, we regard information as a quantity that
converts a prior distribution into a posterior distribution. The amount of
information can then be quantified by relative entropy. The key to our utility
indifference argument is to equate the maximised a posterior utility, after
paying certain cost for the information, with the a posterior expectation of
the utility based on the a priori optimal strategy. This formulation leads to
one price for a given quantity of upside information; and another price for a
given quantity of downside information. The ideas are illustrated by means of
simple examples.
