Optimal Investment with Stopping in Finite Horizon

Xiongfei Jian, Xun Li and Fahuai Yi

Papers from arXiv.org

Abstract: In this paper, we investigate dynamic optimization problems featuring both stochastic control and optimal stopping in a finite time horizon. The paper aims to develop new methodologies, which are significantly different from those of mixed dynamic optimal control and stopping problems in the existing literature, to study a manager's decision. We formulate our model to a free boundary problem of a fully nonlinear equation. Furthermore, by means of a dual transformation for the above problem, we convert the above problem to a new free boundary problem of a linear equation. Finally, we apply the theoretical results to challenging, yet practically relevant and important, risk-sensitive problems in wealth management to obtain the properties of the optimal strategy and the right time to achieve a certain level over a finite time investment horizon.

Date: 2014-06
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Citations: View citations in EconPapers (7)

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