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

2004
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The Annals of Applied Probability
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We consider the problem of finding the optimal time to sell a stock, subject to a fixed sales cost and an exponential discounting rate \rho. We assume that the price of the stock fluctuates according to the equation dY_t=Y_t(\mu dt+\sigma\xi(t) dt), where (\xi(t)) is an alternating Markov renewal process with values in {\pm1}, with an exponential renewal time. We determine the critical value of \rho under which the value function is finite. We examine the validity of the "principle of smooth

doi:10.1214/105051604000000747
fatcat:jhtyrkrzhzedboenmrhh6lbdwu