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Optimal Stopping Methods for Investment Decisions: A Literature Review

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  • Zhenya Liu

    (School of Finance, Renmin University of China, Beijing 100872, China
    China Financial Policy Research Center, Renmin University of China, Beijing 100872, China
    CERGAM, Aix-Marseille University, CEDEX 07, 13284 Aix-en-Provence, France)

  • Yuhao Mu

    (School of Finance, Renmin University of China, Beijing 100872, China)

Abstract

Investors decide the best time to take a given action by maximizing their utility function while taking into account current information and the underlying process in the optimal stopping model. Option pricing, sequential analysis, disorder problems, and other problems requiring time decision-making are all examples of this type of problem. A lot of literature has studied optimal stopping models and put forward the corresponding solutions. Investors in financial markets must also know when to buy and sell, so timing is crucial. This paper presents a classified review of the literature on optimal stopping models, followed by a summary of the strategies that can be used in financial markets to make investment decisions using optimal stopping methods.

Suggested Citation

  • Zhenya Liu & Yuhao Mu, 2022. "Optimal Stopping Methods for Investment Decisions: A Literature Review," IJFS, MDPI, vol. 10(4), pages 1-23, October.
    • Handle: RePEc:gam:jijfss:v:10:y:2022:i:4:p:96-:d:941528
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    References listed on IDEAS

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