EconPapers    
Economics at your fingertips  
 

Pricing and hedging contingent claims with liquidity costs and market impact

Frédéric Abergel () and Grégoire Loeper
Additional contact information
Frédéric Abergel: MAS - Mathématiques Appliquées aux Systèmes - EA 4037 - Ecole Centrale Paris, BNP Paribas
Grégoire Loeper: MAS - Mathématiques Appliquées aux Systèmes - EA 4037 - Ecole Centrale Paris

Working Papers from HAL

Abstract: We study the influence of taking liquidity costs and market impact into account when hedging a contingent claim, first in the discrete time setting, then in continuous time. In the latter case and in a complete market, we derive a fully non-linear pricing partial differential equation, and characterizes its parabolic nature according to the value of a numerical parameter naturally interpreted as a relaxation coefficient for market impact. We then investigate the more challenging case of stochastic volatility models, and prove the parabolicity of the pricing equation in a particular case.

Keywords: Market impact; partial differential equations; liquidity costs (search for similar items in EconPapers)
Date: 2013-03-19
New Economics Papers: this item is included in nep-cwa and nep-mst
Note: View the original document on HAL open archive server: https://hal.science/hal-00802402v4
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
https://hal.science/hal-00802402v4/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-00802402

DOI: 10.2139/ssrn.2239498

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2023-09-12
Handle: RePEc:hal:wpaper:hal-00802402