Investing and stopping
Journal of Applied Probability
Applied Probability Trust
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Duembgen, M., & Rogers, L. (2014). Investing and stopping. Journal of Applied Probability, 51 898-909. http://projecteuclid.org/euclid.jap/1421763316
In this paper we solve the hedge fund manager’s optimization problem in a model that allows for investors to enter and leave the fund over time depending on its performance. The manager’s payoff at the end of the year will then depend not just on the terminal value of the fund level, but also on the lowest and the highest value reached over that time. We establish equivalence to an optimal stopping problem for Brownian motion; by approximating this problem with the corresponding optimal stopping problem for random walk we are led to a simple and efficient numerical scheme to find the solution, which we then illustrate with some examples.
External link: http://projecteuclid.org/euclid.jap/1421763316
This record's URL: https://www.repository.cam.ac.uk/handle/1810/246147