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Momentum liquidation under partial information
Uppsala University, Disciplinary Domain of Science and Technology, Mathematics and Computer Science, Department of Mathematics, Applied Mathematics and Statistics.
Uppsala University, Disciplinary Domain of Science and Technology, Mathematics and Computer Science, Department of Mathematics, Analysis and Probability Theory.
2016 (English)In: Journal of Applied Probability, ISSN 0021-9002, E-ISSN 1475-6072, Vol. 53, no 2, 341-359 p.Article in journal (Refereed) Published
Abstract [en]

Momentum is the notion that an asset that has performed well in the past will continue to do so for some period. We study the optimal liquidation strategy for a momentum trade in a setting where the drift of the asset drops from a high value to a smaller one at some random change-point. This change-point is not directly observable for the trader, but it is partially observable in the sense that it coincides with one of the jump times of some exogenous Poisson process representing external shocks, and these jump times are assumed to be observable. Comparisons with existing results for momentum trading under incomplete information show that the assumption that the disappearance of the momentum effect is triggered by observable external shocks significantly improves the optimal strategy.

Place, publisher, year, edition, pages
2016. Vol. 53, no 2, 341-359 p.
Keyword [en]
Momentum trading; stock selling; optimal stopping; quickest detection problem for Brownian motion
National Category
Mathematics Probability Theory and Statistics
Identifiers
URN: urn:nbn:se:uu:diva-283519DOI: 10.1017/jpr.2016.4ISI: 000378598700003OAI: oai:DiVA.org:uu-283519DiVA: diva2:919252
Funder
Swedish Research Council
Available from: 2016-04-13 Created: 2016-04-13 Last updated: 2017-11-30Bibliographically approved
In thesis
1. Optimal timing decisions in financial markets
Open this publication in new window or tab >>Optimal timing decisions in financial markets
2017 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis consists of an introduction and five articles. A common theme in all the articles is optimal timing when acting on a financial market. The main topics are optimal selling of an asset, optimal exercising of an American option, optimal stopping games and optimal strategies in trend following trading. In all the articles, we consider a financial market different from the standard Black-Scholes market. In two of the articles this difference consists in allowing for jumps of the underlying process. In the other three, the difference is that we have incomplete information about the drift of the underlying process. This is a natural assumption in many situations, including the case of a true buyer of an American option, trading in a market which exhibits trends, and optimal liquidation of an asset in the presence of a bubble. These examples are all addressed in this thesis.

Place, publisher, year, edition, pages
Uppsala: Department of Mathematics, 2017. 28 p.
Series
Uppsala Dissertations in Mathematics, ISSN 1401-2049 ; 98
Keyword
optimal stopping, American options, optimal stopping games, incomplete information
National Category
Other Mathematics
Research subject
Mathematics
Identifiers
urn:nbn:se:uu:diva-313266 (URN)978-91-506-2617-9 (ISBN)
Public defence
2017-03-10, Siegbahnsalen, Ångströmlaboratoriet, Lägerhyddsvägen 2, Uppsala, 09:15 (English)
Opponent
Supervisors
Available from: 2017-02-14 Created: 2017-01-18 Last updated: 2017-02-14

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Ekström, ErikVannestål, Martin

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