A Class of Solvable Multiple Entry Problems with Forced Exits
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We study an optimal investment problem with multiple entries and forced exits. A closed form solution of the optimisation problem is presented for general underlying diffusion dynamics and a general running payoff function in the case when forced exits occur on the jump times of a Poisson process. Furthermore, we allow the investment opportunity to be subject to the risk of a catastrophe that can occur at the jumps of the Poisson process. More precisely, we attach IID Bernoulli trials to the jump times and if the trial fails, no further re-entries are allowed. Interestingly, we find in the general case that the optimal investment threshold is independent of the success probability is the Bernoulli trials. The results are illustrated with explicit examples.
An anonymous referee is acknowledged for careful reading and a number of comments that led to a significant improvement of the paper. Paavo Salminen is acknowledged for helpful discussions.