Antão, Paula

Matos, João Amaro de

English

New University of Lisbon's Repository

Super-replicating bounds on European option prices when the underlying asset is illiquid

Repositório da Universidade Nova de Lisboa

Super−replicating Bounds on European Option Prices whenthe Underlying Asset is Illiquid João Amaro de Matos Paula AntãoSchool of Economics, Universidade Nova de Lisboa School of Economics, Universidade Nova de LisboaAbstractWe derive super−replicating bounds on European option prices when the underlying asset isilliquid. Illiquidity is taken as the impossibility of transacting the underlying asset at somepoints in time, generating market incompleteness. We conclude that option price boundsfollow a Black−Scholes partial differential equation where the volatility term is adjusted toreflect different levels of illiquidity.Citation: Amaro de Matos, João and Paula Antão, (2001) "Super−replicating Bounds on European Option Prices when theUnderlying Asset is Illiquid." Economics Bulletin, Vol. 7, No. 1 pp. 1−7Submitted: October 17, 2001.  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lv}3Sð'fí}3ðìRðEý Rä}33ð dZâE2ðn 2ý }ä2 n Eý ZâäE2ðý }ä2o ' }éWkhq/ wkh sduwldo gl>huhqwldo htxdwlrq vdwlv?hg e| wkh fdoo sulfh lv jlyhq e|ýoä ý YäYôn YäY77o n Y2äY72j272 }sn}' fé:

https://run.unl.pt/bitstream/10362/14640/1/Joao%20Amaro%20de%20Matos.pdf

Super-replicating bounds on European option prices when the underlying asset is illiquid

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