Optimal gradual liquidation of equity from a risky asset

Abstract

We consider a problem of optimal gradual liquidation of equity from a risky asset for continuous time stochastic market model. The owner of the risky asset uses this equity as a source of steady cash flow by borrowing money permanently against this equity. At the terminal time, there is no equity for him in this asset, and the bank gains ownership of this asset. Optimal strategy is obtained explicitly.

Acknowledgement

This work was supported by NSERC grant of Canada 341796-2008.