Hedging with Liquidity Risk under CEV Diffusion
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ID: 110312
2020
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Abstract
We study a discrete time hedging and pricing problem in a market with the liquidity risk. We consider a discrete version of the constant elasticity of variance (CEV) model by applying Leland’s discrete time replication scheme. The pricing equation becomes a nonlinear partial differential equation, and we solve it by a multi scale perturbation method. A numerical example is provided.
| Reference Key |
park2020riskshedging
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| Authors | Sang-Hyeon Park;Kiseop Lee;Park, Sang-Hyeon;Lee, Kiseop; |
| Journal | risks |
| Year | 2020 |
| DOI |
10.3390/risks8020062
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