کد مقاله | کد نشریه | سال انتشار | مقاله انگلیسی | نسخه تمام متن |
---|---|---|---|---|
5099800 | 1377034 | 2005 | 32 صفحه PDF | دانلود رایگان |
عنوان انگلیسی مقاله ISI
Option pricing with an illiquid underlying asset market
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کلمات کلیدی
موضوعات مرتبط
مهندسی و علوم پایه
ریاضیات
کنترل و بهینه سازی
پیش نمایش صفحه اول مقاله
چکیده انگلیسی
We examine how price impact in the underlying asset market affects the replication of a European contingent claim. We obtain a generalized Black-Scholes pricing PDE and establish the existence and uniqueness of a classical solution to this PDE. Unlike the case with transaction costs, we prove that replication with price impact is always cheaper than superreplication. Compared to the Black-Scholes case, a trader generally buys more stock and borrows more (shorts and lends more) to replicate a call (put). Furthermore, price impact implies endogenous stochastic volatility and an out-of-money option has lower implied volatility than an in-the-money option. This finding has important implications for empirical analysis on volatility smile.
ناشر
Database: Elsevier - ScienceDirect (ساینس دایرکت)
Journal: Journal of Economic Dynamics and Control - Volume 29, Issue 12, December 2005, Pages 2125-2156
Journal: Journal of Economic Dynamics and Control - Volume 29, Issue 12, December 2005, Pages 2125-2156
نویسندگان
Hong Liu, Jiongmin Yong,