The Pure and Applied Mathematics (한국수학교육학회지시리즈B:순수및응용수학)

Korean Society of Mathematical Education (한국수학교육학회)
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BUYING AND SELLING RULES FOR A SIMPLE TRANSACTION OF A MEAN-REVERTING ASSET

  • Shin, Dong-Hoon (Institute for Quantitative Finance and Technology, Korea University)
  • Received : 2010.12.24
  • Accepted : 2011.04.19
  • Published : 2011.05.31
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Abstract

We consider an optimal trading rule in this paper. We assume that the underlying asset follows a mean-reverting process and the transaction consists of one buying and one selling. To maximize the profit, we find price levels to buy low and to sell high. Associated HJB equations are used to formulate the value function. A verification theorem is provided for sufficient conditions. We conclude the paper with a numerical example.

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References

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