BUY‐LOW AND SELL‐HIGH INVESTMENT STRATEGIES

Abstract

Buy‐low and sell‐high investment strategies are a recurrent theme in the considerations of many investors. In this paper, we consider an investor who aims at maximizing the expected discounted cash‐flow that can be generated by sequentially buying and selling one share of a given asset at fixed transaction costs. We model the underlying asset price by means of a general one‐dimensional Itô diffusion X, we solve the resulting stochastic control problem in a closed analytic form, and we completely characterize the optimal strategy. In particular, we show that, if 0 is a natural boundary point of X, e.g., if X is a geometric Brownian motion, then it is never optimal to sequentially buy and sell. On the other hand, we prove that, if 0 is an entrance point of X, e.g., if X is a mean‐reverting constant elasticity of variance (CEV) process, then it may be optimal to sequentially buy and sell, depending on the problem data.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 53 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.