Pricing Options in an Extended Black Scholes Economy with Illiquidity: Theory and Empirical Evidence
研究标的资产非完全流动时扩展Black-Scholes经济中的期权定价，将流动性风险建模为随机供给曲线，推导最优离散时间对冲策略，实证发现每份期权内含显著流动性成本。
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 microstructure literature, the supply curve is upward sloping with purchases executed at higher prices and sales at lower prices. Optimal discrete time hedging strategies are then derived. Empirical evidence reveals a significant liquidity cost intrinsic to every option.