2017/12/31 by Tim Leung, Jiao Li, Leung, Tim +3 · 1 citation
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #FOS: Economics and business #Financial Markets and Investment Strategies #Mathematical Finance (q-fin.MF) #Stochastic processes and financial applications #q-fin.MF
paper · pdf · doi:10.48550/arxiv.1801.00372
25 pages
openalex publication_date 2017/12/31 · arxiv created 2018/08/04 · arxiv updated 2018/08/07 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This paper studies an optimal trading problem that incorporates the trader's market view on the terminal asset price distribution and uninformative noise embedded in the asset price dynamics. We model the underlying asset price evolution by an exponential randomized Brownian bridge (rBb) and consider various prior distributions for the random endpoint. We solve for the optimal strategies to sell a stock, call, or put, and analyze the associated delayed liquidation premia. We solve for the optimal trading strategies numerically and compare them across different prior beliefs. Among our results, we find that disconnected continuation/exercise regions arise when the trader prescribe a two-point discrete distribution and double exponential distribution.