OPTIMAL SELLING STRATEGY WITH A LARGE BLOCK OF STOCK | Zendy

Yi Fu | Zendy; Baojun Bian | Zendy; Zhang Ji-zhou | Zendy

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OPTIMAL SELLING STRATEGY WITH A LARGE BLOCK OF STOCK

Author(s) -

Yi Fu,

Baojun Bian,

Zhang Ji-zhou

Publication year - 2015

Publication title -

journal of applied analysis and computation

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.55

H-Index - 21

eISSN - 2158-5644

pISSN - 2156-907X

DOI - 10.11948/2015040

Subject(s) - hamilton–jacobi–bellman equation , viscosity solution , bellman equation , stock (firearms) , mathematical optimization , upper and lower bounds , time horizon , mathematics , stock price , econometrics , computer science , engineering , mechanical engineering , mathematical analysis , paleontology , series (stratigraphy) , biology

In this paper, we develop an optimal stock selling strategy with the stochastic upper bound of selling rate over an infinite time horizon. Moreover, the temporary and permanent price impact are considered. We treat the problem by using a fluid model. In the model that the number of shares is treated as fluid (continuous) and the overall liquidation is dictated by the rates of selling over time. The goal is to maximize the overall return under state constraints. The corresponding value function with the selling strategies is shown to be continuous and the unique viscosity solution to the associated HJB equation. Finally, a numerical example is given to illustrate the result.

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