Asset liquidation under drift uncertainty and regime-switching volatility

DOI10.1007/S00245-018-9518-5zbMATH Open1443.91269arXiv1701.08579OpenAlexW3100150037WikidataQ129270982 ScholiaQ129270982MaRDI QIDQ2187329FDOQ2187329

Authors: Juozas Vaicenavicius 

Publication date: 2 June 2020

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

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.

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

Recommendations

• Optimal liquidation of an asset under drift uncertainty
• Optimal selling of an asset under incomplete information
• Optimal selling of an asset with jumps under incomplete information
• Optimal liquidation in a finite time regime switching model with permanent and temporary pricing impact
• Optimal liquidation of a large block of stock with regime switching

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)

Cites Work

• Continuous-time stochastic control and optimization with financial applications
• Title not available (Why is that?)
• Title not available (Why is that?)
• Optimal stock liquidation in a regime switching model with finite time horizon
• Stock trading: an optimal selling rule
• Title not available (Why is that?)
• Optimal Selling Rules in a Regime-Switching Exponential Gaussian Diffusion Model
• Free boundary and optimal stopping problems for American Asian options
• Fundamentals of stochastic filtering
• Title not available (Why is that?)
• About the pricing equations in finance
• Title not available (Why is that?)
• Optimal investment
• Probabilistic representation and approximation for coupled systems of variational inequalities
• Methods for pricing American options under regime switching
• Closed-Form Solutions for Perpetual American Put Options with Regime Switching
• Recursive Algorithms for Stock Liquidation: A Stochastic Optimization Approach
• Optimal selling of an asset with jumps under incomplete information
• A Near-Optimal Selling Rule for a Two-Time-Scale Market Model
• Investment Timing Under Incomplete Information
• Optimal selling of an asset under incomplete information
• A finite time horizon optimal stopping problem with regime switching
• Convexity theory for the term structure equation
• Optimal stopping of a piecewise-deterministic markov process
• STOCK LIQUIDATION VIA STOCHASTIC APPROXIMATION USING NASDAQ DAILY AND INTRA‐DAY DATA
• Adaptive Poisson disorder problem
• Multisource Bayesian sequential change detection
• Optimal liquidation of an asset under drift uncertainty
• On the perpetual American put options for level dependent volatility models with jumps
• The optimal dividend problem in the dual model
• Pricing of perpetual American options in a model with partial information
• A proof of the smoothness of the finite time horizon American put option for jump diffusions
• Quickest detection with discretely controlled observations

Cited In (8)

• Optimal liquidation of an asset under drift uncertainty
• Title not available (Why is that?)
• Optimal selling strategies under regime-switching market environment with finite expiry
• Optimal selling of an asset under incomplete information
• Title not available (Why is that?)
• Optimal selling of an asset with jumps under incomplete information
• Optimal entry decision of unemployment insurance under partial information
• Momentum liquidation under partial information

This page was built for publication: Asset liquidation under drift uncertainty and regime-switching volatility

Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2187329)