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Optimal buying at the global minimum in a regime switching model

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  • Yang, Aijun
  • Liu, Yue
  • Xiang, Ju
  • Yang, Hongqiang

Abstract

This paper addresses the problem of buying an asset at its expected globally minimal price, to that end, we model it as an optimal stopping problem with regime switching driven by a continuous-time Markov chain. We characterize the optimal stopping time by optimizing the value functions and writing them as solutions of a system of integral equations. Finally we develop a stochastic recursive algorithm for numerical implementation.

Suggested Citation

  • Yang, Aijun & Liu, Yue & Xiang, Ju & Yang, Hongqiang, 2016. "Optimal buying at the global minimum in a regime switching model," Mathematical Social Sciences, Elsevier, vol. 84(C), pages 50-55.
    • Handle: RePEc:eee:matsoc:v:84:y:2016:i:c:p:50-55
    DOI: 10.1016/j.mathsocsci.2016.08.005
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    References listed on IDEAS

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    1. David D. Yao & Qing Zhang & Xun Yu Zhou, 2006. "A Regime-Switching Model for European Options," International Series in Operations Research & Management Science, in: Houmin Yan & George Yin & Qing Zhang (ed.), Stochastic Processes, Optimization, and Control Theory: Applications in Financial Engineering, Queueing Networks, and Manufacturing Systems, chapter 0, pages 281-300, Springer.
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    7. William M. Boyce, 1970. "Stopping Rules for Selling Bonds," Bell Journal of Economics, The RAND Corporation, vol. 1(1), pages 27-53, Spring.
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    Cited by:

    1. Yue Liu & Aijun Yang & Jijian Zhang & Jingjing Yao, 2020. "An Optimal Stopping Problem of Detecting Entry Points for Trading Modeled by Geometric Brownian Motion," Computational Economics, Springer;Society for Computational Economics, vol. 55(3), pages 827-843, March.

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