Analysis of the optimal time to withdraw investments from hedge funds with alternative fee structures
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Date
2022-04
Authors
Meng, Fei
Saunders, David
Journal Title
Journal ISSN
Volume Title
Publisher
Oxford Academic
Abstract
We study the optimal stopping problem arising from an investor determining the optimal time to withdraw
from a hedge fund investment with a shared loss fee structure and a positive fee for assets under
management. The optimal solution is characterized as the first exit time of the fund value from a bounded
region with upper and lower stopping boundaries. In the infinite horizon case, we present the complete
solution to the optimal stopping problem, while in the finite horizon case we derive a pair of coupled
integral equations for the stopping bounds, and present an asymptotic analysis of the stopping boundaries
for small time.
Description
This is a pre-copyedited, author-produced version of an article accepted for publication in IMA Journal of Management Mathematics following peer review. The version of record Meng, F., & Saunders, D. (2021). Analysis of the optimal time to withdraw investments from hedge funds with alternative fee structures. IMA Journal of Management Mathematics, 33(2), 315–344 is available online at: https://doi.org/10.1093/imaman/dpab016.
Keywords
optimal stopping, hedge funds, variational inequalities, asymptotic analysis