Let's say I have the stock of General Motors and I assume some fancy model for the price of this stock and I have to sell it within a month. Can I use Longstaff-Schwartz algorithm to determine the best time to sell the stock? I'm asking because I noticed that the algorithm seems to be used only for derivatives, but isn't it more natural to use it to determine when is the best time to sell any asset?


1 Answer 1


To solve a standard optimal stopping problem (say Markovian, finite horizon), you must calculate certain conditional expectations that arise in the dynamic programming principle algorithm. These conditional expectations can be approximated using Longstaff-Schwartz or the Tsitsiklis-Van Roy approach, among others.

  • $\begingroup$ Thank you for the answer! So it is applicable. Do you know any reason for why it is not applied to find best time to sell a stock? It does look like a cool application. $\endgroup$
    – Qwerty
    Nov 6, 2020 at 21:11
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    $\begingroup$ If you're looking at a 1D problem, if the dynamics for your stock price are not too complex, there are usually better approaches. Monte Carlo approaches have issues with slow convergence, and the regression component often contributes a bias in estimated values. $\endgroup$
    – d_797
    Nov 6, 2020 at 21:33

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