Optimal Selling of an Asset under Incomplete Information | Zendy

Erik Ekström | Zendy; Bing Lu | Zendy

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Optimal Selling of an Asset under Incomplete Information

Author(s) -

Erik Ekström,

Bing Lu

Publication year - 2011

Publication title -

international journal of stochastic analysis

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.19

H-Index - 28

eISSN - 2090-3340

pISSN - 2090-3332

DOI - 10.1155/2011/543590

Subject(s) - asset (computer security) , monotonic function , optimal stopping , boundary (topology) , mathematical economics , mathematics , stopping time , nonlinear system , distribution (mathematics) , complete information , mathematical optimization , computer science , mathematical analysis , statistics , physics , computer security , quantum mechanics

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

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