equation You have invested Ro dollars in a stock market that evolves according to the R...
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equation You have invested Ro dollars in a stock market that evolves according to the R₁ = √R₁-1+€ (4) where &, is a discrete, positive random variable that is independent and identically distributed and where 0 < y < 1. If you sell the stock at the end of period t, it will earn a risk-less return r until time T, which means it will evolve according to R₁ = (1+r) Rt-1 You have to sell the stock, all on the same day, some time before T. (a) Write a dynamic programming recursion to solve the problem. (5) (b) Show that there exists a point in the time 7 such that it is optimal to sell for t≥ T, and optimal to hold for t<T. (c) How does your answer to (b) change if you are allowed to sell only a portion of the assets in a given period? That is, if you have R₁ dollars in your account, you are allowed to sell at Rt at time t. equation You have invested Ro dollars in a stock market that evolves according to the R₁ = √R₁-1+€ (4) where &, is a discrete, positive random variable that is independent and identically distributed and where 0 < y < 1. If you sell the stock at the end of period t, it will earn a risk-less return r until time T, which means it will evolve according to R₁ = (1+r) Rt-1 You have to sell the stock, all on the same day, some time before T. (a) Write a dynamic programming recursion to solve the problem. (5) (b) Show that there exists a point in the time 7 such that it is optimal to sell for t≥ T, and optimal to hold for t<T. (c) How does your answer to (b) change if you are allowed to sell only a portion of the assets in a given period? That is, if you have R₁ dollars in your account, you are allowed to sell at Rt at time t.
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The image you sent describes a stochastic investment problem where you have invested an initial amount of R dollars in a stock market The return on the investment is governed by the following equation... View the full answer
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