Optimal Selling Strategies under Regime-Switching Market Environment with Finite Expiry
Keyword(s):
This paper addresses an optimal stock liquidation problem over a finite-time horizon; to that end, we model it as an optimal stopping problem in a regime-switching market. The optimal stopping time is written as a solution to a system of Volterra type integral equations. Moreover, it reveals that when the risk-free interest rate is always lower than the return rate of the stock, it is never optimal to sell the stock early; otherwise, one should sell the stock in bear market if the stock price reaches a critical value and hold the stock in bull market until the maturity date. Finally, we present a trinomial tree method for numerical implementation. The numerical results are consistent with the theoretical findings.
2010 ◽
Vol 48
(8)
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pp. 5193-5213
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2001 ◽
Vol 38
(2)
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pp. 464-481
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2001 ◽
Vol 38
(02)
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pp. 464-481
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2011 ◽
Vol 2011
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pp. 1-28
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2016 ◽
Vol 2016
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pp. 1-17
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Keyword(s):
2004 ◽
Vol 47
(3)
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pp. 145-162