BUYING AND SELLING RULES FOR A SIMPLE TRANSACTION OF A MEAN-REVERTING ASSET

Shin, Dong-Hoon; Shin, Dong-Hoon

doi:10.7468/jksmeb.2011.18.2.129

P-ISSN1226-0657
E-ISSN2287-6081
KCI

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BUYING AND SELLING RULES FOR A SIMPLE TRANSACTION OF A MEAN-REVERTING ASSET

Journal of the Korean Society of Mathematical Education Series B: The Pure and Applied Mathematics / Journal of the Korean Society of Mathematical Education Series B: The Pure and Applied Mathematics, (P)1226-0657; (E)2287-6081

2011, v.18 no.2, pp.129-139

https://doi.org/10.7468/jksmeb.2011.18.2.129

Shin, Dong-Hoon

Shin,, D. (2011). BUYING AND SELLING RULES FOR A SIMPLE TRANSACTION OF A MEAN-REVERTING ASSET. Journal of the Korean Society of Mathematical Education Series B: The Pure and Applied Mathematics, 18(2), 129-139, https://doi.org/10.7468/jksmeb.2011.18.2.129

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Abstract

We consider an optimal trading rule in this paper. We assume that the underlying asset follows a mean-reverting process and the transaction consists of one buying and one selling. To maximize the profit, we find price levels to buy low and to sell high. Associated HJB equations are used to formulate the value function. A verification theorem is provided for sufficient conditions. We conclude the paper with a numerical example.

keywords: mean-reversion, regime switching, optimal stopping

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Article Contents

Vol.18 No.2

BUYING AND SELLING RULES FOR A SIMPLE TRANSACTION OF A MEAN-REVERTING ASSET

Abstract

Reference

Journal of the Korean Society of Mathematical Education Series B: The Pure and Applied Mathematics