2016/10/26 by Tim Leung, Zheng Wang, Leung, Tim +1
Economics, Econometrics and Finance · #60G40 #62L15 #91G10 #91G80 #Capital Investment and Risk Analysis #FOS: Economics and business #Financial Markets and Investment Strategies #Mathematical Finance (q-fin.MF) #Risk Management (q-fin.RM) #Stochastic processes and financial applications #Trading and Market Microstructure (q-fin.TR) #msc:60G40 #msc:62L15 #msc:91G10 #msc:91G80 #q-fin.MF #q-fin.RM #q-fin.TR
paper · pdf · doi:10.48550/arxiv.1610.08143
arxiv created 2016/10/26 · openalex publication_date 2016/10/26 · arxiv updated 2016/10/27 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This paper studies the optimal risk-averse timing to sell a risky asset. The investor's risk preference is described by the exponential, power, or log utility. Two stochastic models are considered for the asset price -- the geometric Brownian motion and exponential Ornstein-Uhlenbeck models -- to account for, respectively, the trending and mean-reverting price dynamics. In all cases, we derive the optimal thresholds and certainty equivalents to sell the asset, and compare them across models and utilities, with emphasis on their dependence on asset price, risk aversion, and quantity. We find that the timing option may render the investor's value function and certainty equivalent non-concave in price. Numerical results are provided to illustrate the investor's strategies and the premium associated with optimally timing to sell.