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When to sell a Markov chain asset?

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  • Qing Zhang

Abstract

This paper is concerned with an optimal stock selling rule under a Markov chain model. The objective is to find an optimal stopping time to sell the stock so as to maximize an expected return. Solutions to the associated variational inequalities are obtained. Closed-form solutions are given in terms of a set of threshold levels. Verification theorems are provided to justify their optimality. Finally, numerical examples are reported to illustrate the results.

Suggested Citation

  • Qing Zhang, 2013. "When to sell a Markov chain asset?," Papers 1309.7507, arXiv.org.
    • Handle: RePEc:arx:papers:1309.7507
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    References listed on IDEAS

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    1. Norberg, Ragnar, 2003. "The Markov Chain Market," ASTIN Bulletin, Cambridge University Press, vol. 33(2), pages 265-287, November.
    2. John van der Hoek & Robert J. Elliott, 2012. "American option prices in a Markov chain market model," Applied Stochastic Models in Business and Industry, John Wiley & Sons, vol. 28(1), pages 35-59, January.
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