We model demand-pressure effects on option prices. The model shows that demand pressure in one option contract increases its price by an amount pro- portional to the variance of the unhedgeable part of the option. Similarly, the demand pressure increases the price of any other option by an...

We study how intermediation and asset prices in over-the-counter markets are affected by illiquidity associated with search and bargaining. We compute explicitly the prices at which investors trade with each other as well as marketmakers' bid and ask prices in a dynamic model with strategic...

We provide the impact on asset prices of search-and-bargaining frictions in over-the-counter markets. Under natural conditions, prices are lower and illiquidity discounts higher when counterparties are harder to find, when sellers have less bargaining power, when the fraction of qualified owners...

We provide the impact on asset prices of trade by search and bargaining. Under natural conditions, prices are higher if investors can find each other more easily, if sellers have more bargaining power, or if the fraction of qualified owners is greater. If agents face risk limits, then higher...

This paper studies equilibrium asset pricing with liquidity risk | the risk arising from unpredictable changes in liquidity over time. It is shown that a security s required return depends on its expected illiquidity and on the covariances of its own return and illiquidity with market return and...

This paper solves explicitly a simple equilibrium model with liquidity risk. In our liquidityadjusted capital asset pricing model, a security s required return depends on its expected liquidity as well as on the covariances of its own return and liquidity with the market return and liquidity. In...

We provide a model that links a security's market liquidity - i.e., the ease of trading it - and traders' funding liquidity - i.e., their availability of funds. Traders provide market liquidity and their ability to do so depends on their funding, that is, their capital and the margins charged by...

This paper studies predatory trading: trading that induces and/or exploits other investors s need to reduce their positions. We show that if one trader needs to sell, others also sell and subsequently buy back the asset. This leads to price overshooting and a reduced liquidation value for the...

This paper studies predatory trading: trading that induces and/or exploits other investors need to reduce their positions. We show that if one trader needs to sell, others also sell and subsequently buy back the asset. This leads to price overshooting and a reduced liquidation value for the...

The dangers of shouting \re" in a crowded theater are well understood, but the dangers of rushing to the exit in the nancial markets are more complex. Yet, the two events share several features, and I analyze why people crowd into theaters and trades, why they run, what determines the risk,...