Optimal timing for an indivisible asset sale

Jonathan Evans, Vicky Henderson, David Hobson

Research output: Contribution to journalArticle

16 Citations (Scopus)

Abstract

In this paper, we investigate the pricing via utility indifference of the right to sell a non-traded asset. Consider an agent with power utility who owns a single unit of an indivisible, non-traded 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 non-traded 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.
Original languageEnglish
Pages (from-to)545-567
Number of pages23
JournalMathematical Finance
Volume18
Issue number4
DOIs
Publication statusPublished - Oct 2008

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Indivisible
sale
Timing
Sales
assets
Proportion
Optimal Stopping Problem
Stochastic Control
Transcendental
Optimal Strategy
Pricing
pricing
Control Problem
Exceed
Choose
Unit
Optimal timing
Assets
Asset sales
market

Cite this

Optimal timing for an indivisible asset sale. / Evans, Jonathan; Henderson, Vicky; Hobson, David.

In: Mathematical Finance, Vol. 18, No. 4, 10.2008, p. 545-567.

Research output: Contribution to journalArticle

Evans, Jonathan ; Henderson, Vicky ; Hobson, David. / Optimal timing for an indivisible asset sale. In: Mathematical Finance. 2008 ; Vol. 18, No. 4. pp. 545-567.
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