Before revision: We consider a stochastic game between a trader and the central bank on target zone markets. In this type of markets the price process is modeled as a diffusion which is reflected at one or more barriers. Such models arise when a currency exchange rate is kept above a certain threshold due to central bank intervention. We consider a trader who wishes to liquidate a large amount of currency, where for whom prices are optimal at the barrier.
After revision: We consider a stochastic control problem for a trader who wishes to liquidate a large amount of currency, where for whom prices are optimal at the barrier.