The right time to sell a stock whose price is driven by Markovian noise

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dc.creatorDalang, Robert C.
dc.creatorHongler, M. -O.
dc.date2005-03-25
dc.date.accessioned2026-07-07T12:07:15Z
dc.date.available2026-07-07T12:07:15Z
dc.descriptionWe consider the problem of finding the optimal time to sell a stock, subject to a fixed sales cost and an exponential discounting rate ρ. We assume that the price of the stock fluctuates according to the equation dY_t=Y_t(μdt+σξ(t) dt), where (ξ(t)) is an alternating Markov renewal process with values in {\pm1}, with an exponential renewal time. We determine the critical value of ρunder which the value function is finite. We examine the validity of the ``principle of smooth fit'' and use this to give a complete and essentially explicit solution to the problem, which exhibits a surprisingly rich structure. The corresponding result when the stock price evolves according to the Black and Scholes model is obtained as a limit case.
dc.descriptionPublished at http://dx.doi.org/10.1214/105051604000000747 in the Annals of Applied Probability (http://www.imstat.org/aap/) by the Institute of Mathematical Statistics (http://www.imstat.org)
dc.identifierhttps://arxiv.org/abs/math/0503580
dc.identifierhttp://arxiv.org/abs/math/0503580
dc.identifierAnnals of Applied Probability 2004, Vol. 14, No. 4, 2176-2201
dc.identifierdoi:10.1214/105051604000000747
dc.identifier.urihttp://salesiana.dossiersoluciones.com/handle/123456789/208906
dc.subjectProbability
dc.subjectPricing of Securities
dc.subject60G40 (Primary) 90A09\sep60J27 (Secondary)
dc.titleThe right time to sell a stock whose price is driven by Markovian noise
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