Past Mathematical Finance Seminar

7 November 2003
14:15
Mihail Zervos
Abstract
We consider an investment model that can operate in two different modes. The transition from one mode to the other one is immediate and forms a sequence of costly decisions made by the investment's management. Each of the two modes is associated with a rate of payoff that is a function of a state process which can be an economic indicator such as the price of a given comodity. We model the state process by a general one-dimensional diffusion. The objective of the problem is to determine the switching strategy that maximises a long-term average criterion in a pathwise sense. Our analysis results in analytic solutions that can easily be computed, and exhibit qualitatively different optimal behaviours.
  • Mathematical Finance Seminar

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