The right time to sell a stock whose price is driven by Markovian noise

@inproceedings{Dalang2004TheRT,
  title={The right time to sell a stock whose price is driven by Markovian noise},
  author={Robert C. Dalang and M.-O. Hongler},
  year={2004}
}
We consider the problem of seeking the optimal time to sell a stock, subject to a fixed sale cost and an exponential discounting rate ρ. We assume that the price of the stock fluctuates according to the equation dYt = Yt (μ dt+σ ξ(t) dt), where (ξ(t)) is an alternating Markov renewal process with values in {±1}, with an exponential renewal time. We determine the critical value of ρ under which the value function is finite. We examine the validity of the “principle of smooth fit,” and use this… CONTINUE READING