 Realization utility with stop-loss strategyChunpeng Yang and Zhanpei Zhang The Quarterly Review of Economics and Finance, 2021, vol. 81, issue C, 261-275 Abstract: We present a realization utility model with a stop-loss strategy, in which the investor will sell his position and leave the market instantly when the asset price drops to a certain preset level. The model gives the analytical solutions to the value function and the optimal liquidation point. We show that the stop-loss strategy will increase the value function and specifically the growth will be larger when the asset price is close to the stop-loss level, and smaller when the price is relatively high above from it. In addition, we show that the stop-loss strategy will decease the optimal liquidation point, which means it will induce the investor to voluntarily liquidate earlier at a lower take-profit level. Our results highlight the contribution of the stop-loss strategy to utility maximum, which could shed light on the value of this kind of strategies. Keywords: Realization utility; Stop-loss strategy; Value function; Risk management (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:81:y:2021:i:c:p:261-275 DOI: 10.1016/j.qref.2021.06.017 Access Statistics for this article The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty More articles in The Quarterly Review of Economics and Finance from Elsevier |
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