Discretely sampled variance and volatility swaps trade actively in OTC markets. To price these swaps, the continuously sampled approximation is often used to simplify the computations. The purpose of this paper is to study the conditions under which this approximation is valid. Our first set of...

This article studies the pricing of options in an extended Black Scholes economy in which the underlying asset is not perfectly liquid. The resulting liquidity risk is modeled as a stochastic supply curve, with the transaction price being a function of the trade size. Consistent with the market...