Abstract: Assuming that the stock price follows a geometric Brownian motion with drift and volatility , and letting for , we consider the optimal prediction problems [V_1=inf_{0leq auleq T}mathsf{E}�iggl(frac{M_T}{Z_{ au}}�iggr)quadandquad V_2=sup_{0leq auleq T}mathsf{E}�iggl(frac{Z_{ au}}{M_T}�iggr),] where the infimum and supremum are taken over all stopping times of . We show that the following strategy is optimal in the first problem: if stop immediately; if stop as soon as hits a specified function of time; and if wait until the final time . By contrast we show that the following strategy is optimal in the second problem: if stop immediately, and if wait until the final time . Both solutions support and reinforce the widely held financial view that ``one should sell bad stocks and keep good ones. The method of proof makes use of parabolic free-boundary problems and local time--space calculus techniques. The resulting inequalities are unusual and interesting in their own right as they involve the future and as such have a predictive element.
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