Asset liquidation under drift uncertainty and regime-switching volatility

DOI10.1007/S00245-018-9518-5MaRDI QIDQ2187329zbMATH OpenOpenAlexWikidataFDO

Authors Juozas Vaicenavicius

Publication date 2 June 2020

Published in Applied Mathematics and Optimization (Search for Journal in Brave)

Copyright license Creative Commons Attribution 4.0 International

Full work available at URL https://arxiv.org/abs/1701.08579

zbMATH Keywords

sequential analysisoptimal liquidationoptimal stoppingstochastic filteringdrift uncertaintyregime-switching volatility

Mathematics Subject Classification ID

Signal detection and filtering (aspects of stochastic processes) (60G35) Portfolio theory (91G10) Continuous-time Markov processes on general state spaces (60J25) Stopping times; optimal stopping problems; gambling theory (60G40)

Abstract: Optimal liquidation of an asset with unknown constant drift and stochastic regime-switching volatility is studied. The uncertainty about the drift is represented by an arbitrary probability distribution; the stochastic volatility is modelled by $m$-state Markov chain. Using filtering theory, an equivalent reformulation of the original problem as a four-dimensional optimal stopping problem is found and then analysed by constructing approximating sequences of three-dimensional optimal stopping problems. An optimal liquidation strategy and various structural properties of the problem are determined. Analysis of the two-point prior case is presented in detail, building on which, an outline of the extension to the general prior case is given.

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Cited in

(8)

• Momentum liquidation under partial information
• Optimal liquidation of an asset under drift uncertainty
• scientific article; zbMATH DE number 7703253 (Why is no real title available?)
• Optimal selling strategies under regime-switching market environment with finite expiry
• Optimal selling of an asset under incomplete information
• scientific article; zbMATH DE number 7703248 (Why is no real title available?)
• Optimal selling of an asset with jumps under incomplete information
• Optimal entry decision of unemployment insurance under partial information

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