Numerical Solutions of Option Pricing Model with Liquidity Risk
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In this paper, we derive the nonlinear equation for Europeanoption pricing containing liquidity risk which can be dened as the inverseof the partial derivative of the underlying asset price with respect to theamount of assets traded in the ecient market. Numerical solutions areobtained by using nite element method and compared with option pricesof KOSPI200 Stock Index. These prices computed with liquidity risk areconsidered more realistic than the prices of Black-Scholes model withoutliquidity risk.
Abstract
In this paper, we derive the nonlinear equation for Europeanoption pricing containing liquidity risk which can be dened as the inverseof the partial derivative of the underlying asset price with respect to theamount of assets traded in the ecient market. Numerical solutions areobtained by using nite element method and compared with option pricesof KOSPI200 Stock Index. These prices computed with liquidity risk areconsidered more realistic than the prices of Black-Scholes model withoutliquidity risk.
참고문헌 (6)
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- F. Black, "The pricing of options and corporate liabilities", The Journal of Political Economy, 81, pp.637~654 (1973)
- A. Krakovsky, "Gap risk in credit trading", Risk March, pp.65~67 (1999)
- A. Krakovsky, "Pricing liquidity into derivatives", Risk December, pp.65~67 (1999)