Optimal stopping investment with non-smooth utility over an infinite time horizon

Xiaoshan Chen, Xun Li, Fahuai Yi

Research output: Journal article publicationJournal articleAcademic researchpeer-review

1 Citation (Scopus)

Abstract

This study addresses an investment problem facing a venture fund manager who has a non-smooth utility function. The theoretical model characterizes an absolute performance-based compensation package. Technically, the research methodology features stochastic control and optimal stopping by formulating a free-boundary problem with a nonlinear equation, which is transferred to a new one with a linear equation. Numerical results based on simulations are presented to better illustrate this practical investment decision mechanism.

Original languageEnglish
Pages (from-to)81-96
Number of pages16
JournalJournal of Industrial and Management Optimization
Volume13
Issue number5
DOIs
Publication statusPublished - Jan 2019

Keywords

  • Dual transformation
  • Free boundary
  • Non-smooth utility
  • Optimal investment
  • Optimal stopping

ASJC Scopus subject areas

  • Business and International Management
  • Strategy and Management
  • Control and Optimization
  • Applied Mathematics

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