Journal of Applied Probability

Optimal liquidation of a call spread

Erik Ekström, Carl Lindberg, Johan Tysk, and Henrik Wanntorp

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We study the optimal liquidation strategy for a call spread in the case when an investor, who does not hedge, believes in a volatility that differs from the implied volatility. The liquidation problem is formulated as an optimal stopping problem, which we solve explicitly. We also provide a sensitivity analysis with respect to the model parameters.

Article information

J. Appl. Probab. Volume 47, Number 2 (2010), 586-593.

First available in Project Euclid: 17 June 2010

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Mathematical Reviews number (MathSciNet)

Zentralblatt MATH identifier

Primary: 91B28
Secondary: 60G40: Stopping times; optimal stopping problems; gambling theory [See also 62L15, 91A60]

Optimal stopping call spread Bachelier model


Ekström, Erik; Lindberg, Carl; Tysk, Johan; Wanntorp, Henrik. Optimal liquidation of a call spread. J. Appl. Probab. 47 (2010), no. 2, 586--593. doi:10.1239/jap/1276784911.

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