Hedging with liquidity risk under CEV diffusion

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.

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Year of publication:	2020
Authors:	Park, Sang-Hyeon ; Lee, Kiseop
Published in:	Risks. - Basel : MDPI, ISSN 2227-9091. - Vol. 8.2020, 2, p. 1-12
Publisher:	Basel : MDPI
Subject:	discrete time hedging \| liquidity risk \| asymptotic expansion \| CEV diffusion

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Type of publication:	Article
Type of publication (narrower categories):	Article
Language:	English
Other identifiers:	10.3390/risks8020062 [DOI] 173517968X [GVK] hdl:10419/258015 [Handle]
Source:	EconStor

Persistent link: https://www.econbiz.de/10013200595