Zervos, Mihail 
ORCID: 0000-0001-5194-6881, Johnson, Timothy C. and Alazemi, Fares
(2013)
Buy-low and sell-high investment strategies.
Mathematical Finance, 23 (3).
pp. 560-578.
ISSN 0960-1627
Abstract
Buy-low and sell-high investment strategies are a recurrent theme in the considerations of many investors. In this paper, we consider an investor who aims at maximizing the expected discounted cash-flow that can be generated by sequentially buying and selling one share of a given asset at fixed transaction costs. We model the underlying asset price by means of a general one-dimensional Itô diffusion X, we solve the resulting stochastic control problem in a closed analytic form, and we completely characterize the optimal strategy. In particular, we show that, if 0 is a natural boundary point of X, e.g., if X is a geometric Brownian motion, then it is never optimal to sequentially buy and sell. On the other hand, we prove that, if 0 is an entrance point of X, e.g., if X is a mean-reverting constant elasticity of variance (CEV) process, then it may be optimal to sequentially buy and sell, depending on the problem data.
| Item Type: | Article |
|---|---|
| Official URL: | http://onlinelibrary.wiley.com/journal/10.1111/%28... |
| Additional Information: | © 2012 Wiley Periodicals |
| Divisions: | Mathematics |
| Subjects: | Q Science > QA Mathematics |
| Date Deposited: | 08 Aug 2012 13:13 |
| Last Modified: | 12 Dec 2024 00:18 |
| URI: | http://eprints.lse.ac.uk/id/eprint/45259 |
Actions (login required)
 |
View Item |
