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Title
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Option valuation in markets with finite liquidity under fractional CEV assets
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Type
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JournalPaper
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Keywords
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Option pricing, Illiquid market, Sinc collocation method, Price impact.
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Abstract
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The aim of this paper is to numerically price the European double barrier option by calculating the governing fractional Black-Scholes equation in illiquid markets. Incorporating the price impact into the underlying asset dynamic, which means that trading strategies affect the underlying price, we consider markets with - nite liquidity. We survey both cases of rst-order feedback and full feedback. Asset evolution satis es a stochastic differential equation with fractional noise, which is more realistic in markets with statistical dependence. Moreover, the Sinc- collocation method is used to price the option. Numerical experiments show that the results highly correspond to our expectation of illiquid markets.
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Researchers
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ُSeddighe Banihashemi (Second Researcher), Afshin Babaei (Third Researcher), Azadeh Ghasemifard (First Researcher)
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