Discrete-time option pricing with stochastic liquidity

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• 作者：Markus Leippold ; ^a ; ^b ; ^{markus.leippold@bf.uzh.ch} ; Steven Schä ; rer^a
• 关键词：Market liquidity ; Bid-Ask spreads ; Option pricing ; Stochastic liquidity ; Conic finance
• 刊名：Journal of Banking & Finance
• 出版年：2017
• 出版时间：February 2017
• 年：2017
• 卷：75
• 期：Complete
• 页码：1-16
• 全文大小：1191 K
• 卷排序：75

文摘

Classical option pricing theories are usually built on the law of one price, neglecting the impact of market liquidity that may contribute to significant bid-ask spreads. Within the framework of conic finance, we develop a stochastic liquidity model, extending the discrete-time constant liquidity model of Madan (2010). With this extension, we can replicate the term and skew structures of bid-ask spreads typically observed in option markets. We show how to implement such a stochastic liquidity model within our framework using multidimensional binomial trees and we calibrate it to call and put options on the S&P 500.