Optimization of Setting Take-Profit Levels for Derivative Trading

[摘要] This paper develops an optimal stopping rule by characterizing the take-profit level. The optimization problem is modeled by geometric Brownian motion with two switchable regimes and solved by stochastic calculation. A closed-form profitability function for the trading strategies is given, and based on which the optimal take-profit level is numerically achievable with small cost of computational complexity.

[学科分类] 计算数学

[关键词] Black-Scholes model;passage time;optimization