Asset prices are risky, in part, because of uncertainty about the preferences of potential counterparties and the terms-of-trade at which they will be willing to provide liquidity in the future. We call such randomness liquidity risk. We argue that liquidity risk is an important source of...

This paper investigates the potential contribution of cash market price manipulation to an option's value. When the underlying's transaction price follows an exogeneous fundamental process plus a price impact component influenced by trade, both sides of an option position may try to move the...

We develop an equilibrium model of the term structure of forward prices for commodities. Our approach differs from Brennan (1991) and Schwartz (1997) and other two-factor approaches in that we do not assume an exogenous "convenience yield" process as a second factor in forward prices. Rather, we...

We develop an equilibrium model of the term structure of forward prices for commodities. Our approach differs from Brennan (1991) and Schwartz (1997) and other two-factor approaches in that we do not assume an exogenous "convenience yield" process as a second factor in forward prices. Rather, we...