Optimal selling of an asset under incomplete information (Q655226)
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English | Optimal selling of an asset under incomplete information |
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Optimal selling of an asset under incomplete information (English)
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3 January 2012
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Summary: We consider an agent who wants to liquidate an asset with unknown drift. The agent believes that the drift takes one of two given values and has initially an estimate for the probability of either of them. As time goes by, the agent observes the asset price and can therefore update his beliefs about the probabilities for the drift distribution. We formulate an optimal stopping problem that describes the liquidation problem, and we demonstrate that the optimal strategy is to liquidate the first time the asset price falls below a certain time-dependent boundary. Moreover, this boundary is shown to be monotonically increasing, continuous and to satisfy a nonlinear integral equation.
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