Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/5947
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dc.contributorDepartment of Applied Mathematics-
dc.creatorXu, Z-
dc.creatorZhou, XY-
dc.date.accessioned2014-12-11T08:22:57Z-
dc.date.available2014-12-11T08:22:57Z-
dc.identifier.issn1050-5164 (print)-
dc.identifier.issn2168-8737 (online)-
dc.identifier.urihttp://hdl.handle.net/10397/5947-
dc.language.isoenen_US
dc.publisherInstitute of Mathematical Statisticsen_US
dc.rights© Institute of Mathematical Statistics, 2013en_US
dc.rightsThe following article is available at http://projecteuclid.org/DPubS?service=UI&version=1.0&verb=Display&handle=euclid.aoapen_US
dc.subjectOptimal stoppingen_US
dc.subjectProbability distortionen_US
dc.subjectChoquet expectationen_US
dc.subjectProbability distribution/qunatile functionen_US
dc.subjectSkorokhod embeddingen_US
dc.subjectS-shaped and reverse S-shaped functionen_US
dc.titleOptimal stopping under probability distortionen_US
dc.typeJournal/Magazine Articleen_US
dc.identifier.spage251-
dc.identifier.epage282-
dc.identifier.volume23-
dc.identifier.issue1-
dc.identifier.doi10.1214/11-AAP838-
dcterms.abstractWe formulate an optimal stopping problem for a geometric Brownian motion where the probability scale is distorted by a general nonlinear function. The problem is inherently time inconsistent due to the Choquet integration involved. We develop a new approach, based on a reformulation of the problem where one optimally chooses the probability distribution or quantile function of the stopped state. An optimal stopping time can then be recovered from the obtained distribution/quantile function, either in a straightforward way for several important cases or in general via the Skorokhod embedding. This approach enables us to solve the problem in a fairly general manner with different shapes of the payoff and probability distortion functions. We also discuss economical interpretations of the results. In particular, we justify several liquidation strategies widely adopted in stock trading, including those of “buy and hold,” “cut loss or take profit,” “cut loss and let profit run” and “sell on a percentage of historical high.”-
dcterms.accessRightsopen accessen_US
dcterms.bibliographicCitationAnnals of applied probability, Feb. 2013, v. 23, no. 1, p. 251-282-
dcterms.isPartOfAnnals of applied probability-
dcterms.issued2013-02-
dc.identifier.isiWOS:000315310800006-
dc.identifier.scopus2-s2.0-84879682794-
dc.identifier.rosgroupidr63076-
dc.description.ros2012-2013 > Academic research: refereed > Publication in refereed journal-
dc.description.oaAccepted Manuscripten_US
dc.identifier.FolderNumberOA_IR/PIRAen_US
dc.description.pubStatusPublisheden_US
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