Abstract
We study a pricing barrier control problem in a regime-switching regulated market. In doing so, we analyze a class of one-dimensional reflected regime-switching diffusion processes. Such diffusion models arise as the key approximating processes in a regulated financial market system with the presence of regime changes. Our main goal is to determine optimal pricing barriers as solutions of long-run average mean–variance optimization problems. More precisely, the optimal barrier, if exists, will be to maximize the long-run average expected return (i.e. steady-state mean) subject to a selected level of long-run average risk (i.e. steady-state variance).
Original language | American English |
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Pages (from-to) | 491-499 |
Number of pages | 9 |
Journal | Quantitative Finance |
Volume | 19 |
Issue number | 3 |
DOIs | |
State | Published - Apr 2019 |
Keywords
- Ergodic control
- Mean–variance optimization
- Optimal barriers
- Reflected diffusions
- Regime-switching
- Regulated market