Optimal Starting-Stopping and Switching of a CIR Process with Fixed Costs

Tim Leung, Xin Li and Zheng Wang

Papers from arXiv.org

Abstract: This paper analyzes the problem of starting and stopping a Cox-Ingersoll-Ross (CIR) process with fixed costs. In addition, we also study a related optimal switching problem that involves an infinite sequence of starts and stops. We establish the conditions under which the starting-stopping and switching problems admit the same optimal starting and/or stopping strategies. We rigorously prove that the optimal starting and stopping strategies are of threshold type, and give the analytical expressions for the value functions in terms of confluent hypergeometric functions. Numerical examples are provided to illustrate the dependence of timing strategies on model parameters and transaction costs.

Date: 2014-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Published in Risk & Decision Analysis, vol. 5, no.2-3, 2014

Downloads: (external link)
http://arxiv.org/pdf/1411.6080 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1411.6080

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().