A class of solvable multiple entry problems with forced exits

DOI10.1007/S00245-017-9449-6zbMATH Open1417.49004arXiv1610.02877OpenAlexW2963945399MaRDI QIDQ2422352FDOQ2422352

Authors: Jukka Lempa 

Publication date: 19 June 2019

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

Abstract: We study an optimal investment problem with multiple entries and forced exits. A closed form solution of the optimisation problem is presented for general underlying diffusion dynamics and a general running payoff function in the case when forced exits occur on the jump times of a Poisson process. Furthermore, we allow the investment opportunity to be subject to the risk of a catastrophe that can occur at the jumps of the Poisson process. More precisely, we attach IID Bernoulli trials to the jump times and if the trial fails, no further re-entries are allowed. We show in the general case that the optimal investment threshold is independent of the success probability is the Bernoulli trials. The results are illustrated with explicit examples.

Full work available at URL: https://arxiv.org/abs/1610.02877

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zbMATH Keywords

optimal investment problem

Mathematics Subject Classification ID

Existence theories for optimal control problems involving relations other than differential equations (49J21)

Cites Work

• A survey and some generalizations of Bessel processes
• A Problem of Sequential Entry and Exit Decisions Combined with Discretionary Stopping
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• Markov Processes, Brownian Motion, and Time Symmetry
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• Introduction to probability models
• An investment model with entry and exit decisions
• On properties of analytically solvable families of local volatility diffusion models
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• A Sequential Entry Problem with Forced Exits

Cited In (2)

• Constrained optimal stopping, liquidity and effort
• A Sequential Entry Problem with Forced Exits

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