Related papers: When to sell an asset amid anxiety about drawdowns
This paper studies the stochastic modeling of market drawdown events and the fair valuation of insurance contracts based on drawdowns. We model the asset drawdown process as the current relative distance from the historical maximum of the…
We employ a natural method from the perspective of the optimal stopping theory to analyze entry-exit decisions with implementation delay of a project, and provide closed expressions for optimal entry decision times, optimal exit decision…
We study the portfolio selection problem of a long-run investor who is maximising the asymptotic growth rate of her expected utility. We show that, somewhat surprisingly, it is essentially not affected by introduction of a floor constraint…
It is well-known that using delta hedging to hedge financial options is not feasible in practice. Traders often rely on discrete-time hedging strategies based on fixed trading times or fixed trading prices (i.e., trades only occur if the…
We study the gain of an insider having private information which concerns the default risk of a counterparty. More precisely, the default time \tau is modelled as the first time a stochastic process hits a random barrier L. The insider…
This paper investigates a novel behavioral feature of recursive preferences: aversion to risks that persist over time, or simply \textit{correlation aversion}. Greater persistence provides information about future consumption but reduces…
We assume that an individual invests in a financial market with one riskless and one risky asset, with the latter's price following a diffusion with stochastic volatility. In the current financial market especially, it is important to…
Maximum drawdown, the largest cumulative loss from peak to trough, is one of the most widely used indicators of risk in the fund management industry, but one of the least developed in the context of measures of risk. We formalize drawdown…
In this paper we demonstrate a striking regularity in the way people place limit orders in financial markets, using a data set consisting of roughly seven million orders from the London Stock Exchange. We define the relative limit price as…
In this paper we consider stopping problems with partial observation under a general risk-sensitive optimization criterion for problems with finite and infinite time horizon. Our aim is to maximize the certainty equivalent of the stopping…
Trading strategies that were profitable in the past often degrade with time. Since unlucky streaks can also hit "healthy" strategies, how can one detect that something truly worrying is happening? It is intuitive that a drawdown that lasts…
The comparative statics of the optimal portfolios across individuals is carried out for a continuous-time complete market model, where the risky assets price process follows a joint geometric Brownian motion with time-dependent and…
We consider the problem of dynamic buying and selling of shares from a collection of $N$ stocks with random price fluctuations. To limit investment risk, we place an upper bound on the total number of shares kept at any time. Assuming that…
Mathematically, the execution of an American-style financial derivative is commonly reduced to solving an optimal stopping problem. Breaking the general assumption that the knowledge of the holder is restricted to the price history of the…
This paper is concerned with an optimal stock selling rule under a Markov chain model. The objective is to find an optimal stopping time to sell the stock so as to maximize an expected return. Solutions to the associated variational…
This paper presents an optimal allocation problem in a financial market with one risk-free and one risky asset, when the market is driven by a stochastic market price of risk. We solve the problem in continuous time, for an investor with a…
I model a rational agent who experiences endogenous deadline pressure in the face of a fixed future deadline. The agent holds a resource stock, and opportunities to spend resources arise randomly according to a Poisson process. When the…
Is the elasticity of intertemporal substitution (EIS) more or less than one? This question can be answered by confronting theoretical results of asset pricing models with investor behaviour during episodes of stock market panic. If we…
Suppose you have one unit of stock, currently worth 1, which you must sell before time $T$. The Optional Sampling Theorem tells us that whatever stopping time we choose to sell, the expected discounted value we get when we sell will be 1.…
We determine the optimal investment strategy in a Black-Scholes financial market to minimize the so-called {\it probability of drawdown}, namely, the probability that the value of an investment portfolio reaches some fixed proportion of its…