Option pricing in a CEV model with liquidity costs

• Autorzy: Krzysztof Turek
• Języki publikacji: EN

Abstrakty

EN

The goal of this paper is to make an attempt to generalise the model of pricing European options with an illiquid underlying asset considered by Rogers and Singh (2010). We assume that an investor's decisions have only a temporary effect on the price, which is proportional to the square of the change of the number of asset units in the investor's portfolio. We also assume that the underlying asset price follows a CEV model. To prove existence and uniqueness of the solution, we use techniques similar to fixed point theorems and Feynman-Kac representation. Asymptotic behaviour of the option price for small values of the illiquidity parameter is also analysed and a numerical procedure along with some numerical results is included.

Kategorie tematyczne

• 93E20: Optimal stochastic control
• 60H30: Applications of stochastic analysis (to PDE, etc.)

• Wydawca: Institute of Mathematics Polish Academy of Sciences
• Czasopismo: Applicationes Mathematicae
• Rocznik: 2016
• Tom: 43
• Numer: 1
• Strony: 25-55

Daty

wydano

2016

Twórcy

autor

Krzysztof Turek

• Institute of Mathematics, Jagiellonian University, 30-348 Kraków, Poland

Identyfikatory

DOI

10.4064/am2242-1-2016