A Closed‐Form Formula for Pricing European Options With Stochastic Volatility, Regime Switching, and Stochastic Market Liquidity
研究了股票波动率受经济周期影响且市场流动性风险不可忽略时的欧式期权定价问题，推导出解析定价公式，实证表明纳入随机流动性的模型优于恒定流动性模型。
ABSTRACT We consider European option pricing when the volatility of the underlying stock is stochastic and affected by economic cycles. We further assume that market liquidity risks have a significant impact on the price of the stock that is not negligible, and stock prices should be adjusted according to a liquidity discounting factor. For the purpose of option pricing, we transform the established model dynamics under the physical measure into those under a risk‐neutral measure, which forms a foundation in the subsequent closed‐form derivation of the characteristic function. An analytical option pricing formula is then obtained, and numerical tests together with sensitivity analysis are also performed. Through an empirical analysis, we demonstrate that our model, which incorporates stochastic liquidity, significantly outperforms the version with constant liquidity.