Workshop: Advanced Modeling in Finance and Insurance
Time: Tue, September 23, 2008, 09:30-10:20
Speaker: David Hobson
Abstract
We consider the problem facing a risk averse agent who seeks to liquidate or exercise a portfolio of (infinitely divisible) American style options. The optimal liquidation strategy is of threshold form and can be characterised explicitly as the solution of a calculus of variations problem. Apart from a possible initial exercise of a tranche of options, the optimal behaviour involves liquidating the portfolio in infinitesimal amounts, but at times which are singular with respect to calendar time. We consider a number of illustrative examples involving CRRA and CARA utility, stocks and portfolios of options with different strikes, and a model where the act of exercising has an impact on the underlying asset price.
URL: www.ricam.oeaw.ac.at/specsem/sef/events/program/presentation.php
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