Optimal selling of an asset under incomplete information
2011 (English)In: International Journal of Stochastic Analysis, ISSN 2090-3332, Vol. 2011, 543590- p.Article in journal (Refereed) Published
We consider an agent who wants to liquidate an asset with unknown drift. The agent believes that the drift takes one of two given values and has initially an estimate for the probability of either of them. As time goes by, the agent observes the asset price and can thereforeupdate his beliefs about the probabilities for the drift distribution. We formulate an optimal stopping problem that describes the liquidation problem, and we demonstrate that the optimal strategy is to liquidate the first time the asset price falls below a certain time-dependent boundary. Moreover, this boundary is shown to be monotonically increasing, continuous and to satisfy a nonlinear integral equation.
Place, publisher, year, edition, pages
2011. Vol. 2011, 543590- p.
Research subject Mathematics
IdentifiersURN: urn:nbn:se:uu:diva-141329DOI: 10.1155/2011/543590OAI: oai:DiVA.org:uu-141329DiVA: diva2:385414