AN ANALYSIS OF THE SUPPLY CURVE FOR LIQUIDITY RISK THROUGH BOOK DATA

Marcel Blais and Philip Protter ()
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Marcel Blais: Department of Mathematical Sciences, Worcester Polytechnic Institute, Worcester, MA, 01609-2280, USA
Philip Protter: School of Operations Research, Cornell University, Ithaca, NY, 14853-3801, USA

International Journal of Theoretical and Applied Finance (IJTAF), 2010, vol. 13, issue 06, 821-838

Abstract: We use order book data combined with tick data to analyze the supply curve models of liquidity issues in stock and option market trading. We show that supply curves really exist, and further that for highly liquid stocks they are linear. For slightly less liquid stocks the supply curve tends to be jump linear.

Keywords: Liquidity risk; supply curve; hedging risk; semimartingale; arbitrage; option (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (13)

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DOI: 10.1142/S0219024910006017

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