Asset liquidation under drift uncertainty and regime-switching volatility

Juozas Vaicenavicius

Papers from arXiv.org

Abstract: Optimal liquidation of an asset with unknown constant drift and stochastic regime-switching volatility is studied. The uncertainty about the drift is represented by an arbitrary probability distribution; the stochastic volatility is modelled by $m$-state Markov chain. Using filtering theory, an equivalent reformulation of the original problem as a four-dimensional optimal stopping problem is found and then analysed by constructing approximating sequences of three-dimensional optimal stopping problems. An optimal liquidation strategy and various structural properties of the problem are determined. Analysis of the two-point prior case is presented in detail, building on which, an outline of the extension to the general prior case is given.

Date: 2017-01, Revised 2019-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Applied Mathematics & Optimization (2018)

Downloads: (external link)
http://arxiv.org/pdf/1701.08579 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:1701.08579

Access Statistics for this paper

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