Using a novel continuous-time framework, this paper explores the effects of illiquidity on portfolio dynamics and expected returns. In summary, the paper makes three key contributions to the existing literature on asset pricing and illiquidity. First, it illustrates that illiquidity leads to...

In terms of notional value outstanding, derivatives markets declined in both over-the-counter and exchange-traded transactions during the 2007–2009 global financial crisis (GFC) period, as counterparty and credit concerns became pre-eminent. However, during the 2010–2011 second stage of the...