Optimal Trading with a Trailing Stop

• Published in: Applied mathematics & optimization Vol. 83; no. 2; pp. 669 - 698
• Main Authors: Leung, Tim, Zhang, Hongzhong
• Format: Journal Article
• Language: English
• Published: New York Springer US 01.04.2021; Springer Nature B.V
• Subjects: Calculus of Variations and Optimal Control; Optimization; Control; Differential equations; Mathematical analysis; Mathematical and Computational Physics; Mathematical Methods in Physics; Mathematics; Mathematics and Statistics; Numerical and Computational Physics; Optimization; Portfolio management; Sensitivity analysis; Simulation; Systems Theory; Theoretical; Stop loss; C41; Trailing stop; Optimal stopping; 62L15; 60G40; G11; 91G20; Stochastic floor; 91G80; Drawdown; C61

Trailing stop is a popular stop-loss trading strategy by which the investor will sell the asset once its price experiences a pre-specified percentage drawdown. In this paper, we study the problem of timing to buy and then sell an asset subject to a trailing stop. Under a general linear diffusion fra...