SELLING AT THE ULTIMATE MAXIMUM IN A REGIME-SWITCHING MODEL

Yue Liu () and Nicolas Privault
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Yue Liu: School of Finance and Economics, Jiangsu University, Zhenjiang 212013, P. R. China

International Journal of Theoretical and Applied Finance (IJTAF), 2017, vol. 20, issue 03, 1-27

Abstract: This paper deals with optimal prediction in a regime-switching model driven by a continuous-time Markov chain. We extend existing results for geometric Brownian motion by deriving optimal stopping strategies that depend on the current regime state and prove a number of continuity properties relating to optimal value and boundary functions. Our approach replaces the use of closed form expressions, which are not available in our setting, with PDE arguments that also simplify the approach of [du Toit & Peskir (2009) Selling a stock at the ultimate maximum, Annals of Applied Probability 19 (3), 983–1014.] in the classical Brownian case.

Keywords: Optimal stopping; ultimate maximum; regime-switching models; free boundary problems; diffusion processes (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/S0219024917500182

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