Market Illiquidity as a Source of Model Risk in Dynamic Hedging

By Udiger Frey. 2000

74 citations recorded by the source corpus.

View Paper: https://www.semanticscholar.org/paper/33a96a2c2e700400a3384529f91ecd1b4252caa4

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Citations in the corpus

Analytical and Numerical Methods for Pricing Financial Derivatives (2011, methodology): “For further details concerning the model and its qualitative and quantitative analysis the reader is referred to the paper by Frey [50].”
Option pricing with an illiquid underlying asset market (2005, methodology): “Furthermore, the existing literature (e.g., Frey (2000)) ignores the extra cost from the initial trading for acquiring the initial position N0 that is necessary for replication.”
Convergence of a High-order Compact Finite Difference Scheme for a Nonlinear Black-Scholes Equation (2004, background): “In recent years, some of these assumptions have been relaxed in order to model, for instance, the presence of transcation costs [4, 8, 12], feedback effects due to large traders [14, 15, 16, 20, 26, 28], and incomplete markets [23].”
An introduction to market risk measurement (2002, methodology): “This suggests the following two-step procedure, suggested by McNeil and Frey (2000):”
Explicit solutions for a nonlinear model of financial derivatives (2006, methodology): “As shown in [3], [4], the feedback-effect leads to a nonlinear version of the Black–Scholes partial differential equation for a hedge cost u(S, t) of the claim,”
High Order Compact Finite Difference Schemes for A Nonlinear Black-Scholes Equation (2003, background): “In recent years, nonlinear Black-Scholes equations have been derived in order to model • transaction costs arising in the hedging of portfolios [1, 6, 9], • feedback effects due to large traders [12, 13, 14, 16, 26, 32], and • incomplete markets [22].”