publication . Article . 2006

Optimal stock liquidation in a regime switching model with finite time horizon

Name: Optimal stock liquidation in a regime switching model with finite time horizon
Keywords: Optimal selling, Markovian switching, Viscosity solution, Applied Mathematics, Analysis

Qing Zhang; Moustapha Pemy;

Open Access English

Published: 01 Sep 2006 Journal: Journal of Mathematical Analysis and Applications, issue 2, pages 537-552 (issn: 0022247X,

Publisher: Elsevier Inc.

Summary

Abstract

AbstractThis paper is concerned with a finite-horizon optimal selling rule. A set of geometric Brownian motions coupled by a finite-state Markov chain is used to characterize stock price movements. Given a fixed transaction fee, the optimal selling rule can be obtained by solving an optimal stopping problem. The corresponding value function is shown to be the unique viscosity solution to the associated HJB equations. Numerical solutions to these equations and their convergence are obtained. A numerical example is presented to illustrate the results.

doi: 10.1016/j.jmaa.2005.08.034

Subjects

free text keywords: Optimal selling, Markovian switching, Viscosity solution, Applied Mathematics, Analysis, Brownian motion, Convergence (routing), Markov chain, Hamilton–Jacobi–Bellman equation, Mathematical optimization, Optimal stopping, Horizon, Bellman equation, Mathematics

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