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[02683] When to Sell an Asset? – A Distribution Builder Approach

  • Session Time & Room : 3C (Aug.23, 13:20-15:00) @A508
  • Type : Contributed Talk
  • Abstract : We revisit the question of the optimal time of an asset sale from the point of view of Sharpe’s “Distribution Builder” approach: Instead of assuming the investor’s risk preferences in form of a utility function, the investor provides themself a distribution that should be attained when selling the asset at a stopping time (specified a priori). This obviously begs the question of which distributions are attainable for an investor. We connect this problem to the Skorokhod embedding problem for one-dimensional diffusions and provide explicit representation for optimal stopping times as well as their expected values. In the case that the target distribution is specified from a parametrized family (e.g., log-normal distributions), we show that optimality involves a mean-variance trade-off similar to the efficient frontier in Markowitz’s approach to portfolio optimization. This is joint work with Peter Carr.
  • Classification : 91B70, 60G40
  • Format : Talk at Waseda University
  • Author(s) :
    • Stephan Sturm (Worcester Polytechnic Institute)