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Optimal timing for an indivisible asset sale
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Evans, J. (Jonathan), Henderson, Vicky and Hobson, David (David G.). (2008) Optimal timing for an indivisible asset sale. Mathematical Finance, Vol.18 (No.4, Sp. Iss. SI). pp. 545567. ISSN 09601627
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Official URL: http://dx.doi.org/10.1111/j.14679965.2008.00347.x
Abstract
In this paper, we investigate the pricing via utility indifference of the right to sell a nontraded asset. Consider an agent with power utility who owns a single unit of an indivisible, nontraded asset, and who wishes to choose the optimum time to sell this asset. Suppose that this right to sell forms just part of the wealth of the agent, and that other wealth may be invested in a complete frictionless market. We formulate the problem as a mixed stochastic control/optimal stopping problem, which we then solve. We determine the optimal behavior of the agent, including the optimal criteria for the timing of the sale. It turns out that the optimal strategy is to sell the nontraded asset the first time that its value exceeds a certain proportion of the agent's trading wealth. Further, it is possible to characterize this proportion as the solution to a transcendental equation.
Item Type:  Journal Article  

Subjects:  H Social Sciences > HG Finance Q Science > QA Mathematics 

Divisions:  Faculty of Science > Statistics  
Library of Congress Subject Headings (LCSH):  Real options (Finance), Equilibrium (Economics), Distribution (Probability theory), Differential equations, Partial, Assets (Accounting)  
Journal or Publication Title:  Mathematical Finance  
Publisher:  WileyBlackwell Publishing, Inc.  
ISSN:  09601627  
Official Date:  October 2008  
Dates: 


Volume:  Vol.18  
Number:  No.4, Sp. Iss. SI  
Number of Pages:  23  
Page Range:  pp. 545567  
Identification Number:  10.1111/j.14679965.2008.00347.x  
Status:  Peer Reviewed  
Publication Status:  Published  
Description:  Workshop on Mathematical Finance and Insurance, Lijuang, China, 27 May  03 Jun 2006 

Funder:  National Science Foundation (U.S.) (NSF), Engineering and Physical Sciences Research Council (EPSRC)  
Grant number:  DMI 0447990 (NSF)  
Conference Paper Type:  Paper  
Type of Event:  Workshop  
Date(s) of Event:  
References:  DIXIT, A. K., and R. S. PINDYCK (1994): Investment under Uncertainty. Princeton, NJ: Princeton 

URI:  http://wrap.warwick.ac.uk/id/eprint/29368 
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