Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-23T17:10:30.487Z Has data issue: false hasContentIssue false
  • English
  • Français

Optimal liquidation of a call spread

Part of: Stochastic processes

Published online by Cambridge University Press:  14 July 2016

Erik Ekström ,
Carl Lindberg ,
Johan Tysk  and
Henrik Wanntorp
Erik Ekström*
Affiliation:
Uppsala University
Carl Lindberg*
Affiliation:
Chalmers University of Technology
Johan Tysk*
Affiliation:
Uppsala University
Henrik Wanntorp*
Affiliation:
Swedbank Markets
*
∗Postal address: Department of Mathematics, Uppsala University, Box 480, SE-751 06 Uppsala, Sweden.
∗∗∗Postal address: Chalmers University of Technology, SE-412 96 Göteborg, Sweden.
∗Postal address: Department of Mathematics, Uppsala University, Box 480, SE-751 06 Uppsala, Sweden.
∗∗∗∗Postal address: Quantitative Research, Swedbank Markets, SE-105 34 Stockholm, Sweden.
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We study the optimal liquidation strategy for a call spread in the case when an investor, who does not hedge, believes in a volatility that differs from the implied volatility. The liquidation problem is formulated as an optimal stopping problem, which we solve explicitly. We also provide a sensitivity analysis with respect to the model parameters.

Keywords

Optimal stoppingcall spreadBachelier model

MSC classification

Secondary: 60G40: Stopping times; optimal stopping problems; gambling theory
Type
Research Article
Information
Journal of Applied Probability , Volume 47 , Issue 2 , June 2010 , pp. 586 - 593
Copyright
Copyright © Applied Probability Trust 2010 

Footnotes

Support from the Swedish Research Council (VR) is gratefully acknowledged.

References

[1] Carr, P. and Wu, L. (2008). Variance risk premiums. Rev. Financial Studies 22, 1311–1341.Google Scholar
[2] Karatzas, I. and Shreve, S. E. (2000). Brownian Motion and Stochastic Calculus, 2nd edn. Springer, New York.Google Scholar
[3] Pedersen, J. L. and Peskir, G. (2000). Solving non-linear optimal stopping problems by the method of time-change. Stoch. Anal. Appl. 18, 811–835.Google Scholar
[4] Peskir, G. and Shiryaev, A. (2006). Optimal Stopping and Free-Boundary Problems. Birkhäuser, Basel.Google Scholar