Optimal Selling Strategies under Regime-Switching Market Environment with Finite Expiry
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 wh...
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| Format: | Article |
| Language: | English |
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Wiley
2021-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2021/5920285 |
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| _version_ | 1832556621903953920 |
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| author | Jie Xing Taoshun He |
| author_facet | Jie Xing Taoshun He |
| author_sort | Jie Xing |
| collection | DOAJ |
| description | 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. |
| format | Article |
| id | doaj-art-97d658ac7a0f4a45a524f36793a4a7ef |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2021-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-97d658ac7a0f4a45a524f36793a4a7ef2025-02-03T05:44:48ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2021-01-01202110.1155/2021/59202855920285Optimal Selling Strategies under Regime-Switching Market Environment with Finite ExpiryJie Xing0Taoshun He1School of Big Data Applications and Economics (Guiyang Institute for Big Data and Finance), Guizhou University of Finance and Economics, Guiyang 550025, ChinaNumerical Simulation Key Laboratory of Sichuan Province, College of Mathematics and Information Science, Neijiang Normal University, Neijiang 641110, ChinaThis 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.http://dx.doi.org/10.1155/2021/5920285 |
| spellingShingle | Jie Xing Taoshun He Optimal Selling Strategies under Regime-Switching Market Environment with Finite Expiry Discrete Dynamics in Nature and Society |
| title | Optimal Selling Strategies under Regime-Switching Market Environment with Finite Expiry |
| title_full | Optimal Selling Strategies under Regime-Switching Market Environment with Finite Expiry |
| title_fullStr | Optimal Selling Strategies under Regime-Switching Market Environment with Finite Expiry |
| title_full_unstemmed | Optimal Selling Strategies under Regime-Switching Market Environment with Finite Expiry |
| title_short | Optimal Selling Strategies under Regime-Switching Market Environment with Finite Expiry |
| title_sort | optimal selling strategies under regime switching market environment with finite expiry |
| url | http://dx.doi.org/10.1155/2021/5920285 |
| work_keys_str_mv | AT jiexing optimalsellingstrategiesunderregimeswitchingmarketenvironmentwithfiniteexpiry AT taoshunhe optimalsellingstrategiesunderregimeswitchingmarketenvironmentwithfiniteexpiry |