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SUMMARY:An Optimal Selling Strategy Based on Predicting the Ultimate Maxim
 um Price - Violetta Bernyk\, University of Cambridge
DTSTART:20080429T160000Z
DTEND:20080429T170000Z
UID:TALK11974@talks.cam.ac.uk
CONTACT:Eva Gottschalk
DESCRIPTION:In this talk I will present an optimal selling strategy for an
  asset in the following sense. Suppose that an investor has a long positio
 n in one financial asset\, whose price is modelled by some stochastic proc
 ess. The investor’s objective is to determine a “best moment” at whi
 ch to close out the position before a given time and to sell the asset at 
 the highest possible price\, i.e. as close as possible to the ultimate max
 imum price over the whole period. This optimal decision must be based on c
 ontinuous observations of the asset price performance and only on the info
 rmation accumulated to date. Hence\, the investor should use a prediction 
 of the future evolution of the price of the financial security. In the cas
 e where the asset price is modelled by a spectrally positive stable Levy p
 rocess\, we describe explicitly the optimal strategy under certain conditi
 ons on the model parameters. The optimal strategy is of the following form
 : the investor must stop the observation of the price process and sell the
  asset as soon as the associated reflected process crosses for the first t
 ime a particular stopping boundary. To this connection we need to derive a
 lso the law of the associated supremum process and the latter problem date
 s back to 1973. Finally we provide numerical estimates and simulation exam
 ples of the results obtained by using this strategy. \n\n
LOCATION:Winstanley Lecture Hall\, Trinity College
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