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We study a discrete time hedging and pricing problem in a market with the liquidity risk. We consider a discrete version of the constant elasticity of variance (CEV) model by… Click to show full abstract
We study a discrete time hedging and pricing problem in a market with the liquidity risk. We consider a discrete version of the constant elasticity of variance (CEV) model by applying Leland’s discrete time replication scheme. The pricing equation becomes a nonlinear partial differential equation, and we solve it by a multi scale perturbation method. A numerical example is provided.
Keywords:
hedging liquidity;
liquidity risk;
risk cev;
liquidity
Journal Title: Risks
Year Published: 2020
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Journal Title: Risks
Year Published: 2020
Link to full text (if available)
Share on Social Media: Sign Up to like & get
recommendations!