The optimal limit prices of limit orders under an extended geometric brownian motion with bankruptcy risk

Yu Sheng Hsu, Pei Chun Chen, Cheng Hsun Wu

研究成果: 雜誌貢獻期刊論文同行評審

1 引文 斯高帕斯(Scopus)

摘要

In the Black and Scholes system, the underlying asset price model follows geometric Brownian motion (GBM) with no bankruptcy risk. While GBM is a commonly used model in financial markets, bankruptcy risk should be considered in the case of a severe economic crisis, such as that caused by the COVID-19 pandemic. The omission of bankruptcy risk could considerably influence the setting of a trading strategy. In this article, we adopt an extended GBM model that considers the bankruptcy risk and study its optimal limit price problem. A limit order is a classical trading strategy for investing in stocks. First, we construct the explicit expressions of the expected discounted profit functions for sell and buy limit orders and then derive their optimal limit prices. Furthermore, via sensitivity analysis, we discuss the influence of the omission of bankruptcy risk in executing limit orders.

原文???core.languages.en_GB???
文章編號54
頁(從 - 到)1-13
頁數13
期刊Mathematics
9
發行號1
DOIs
出版狀態已出版 - 1 1月 2021

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