Çetin, U.; Jarrow, R.; Protter, P.; Warachka, M. - In: Review of Financial Studies 19 (2006) 2, pp. 493-529
This article studies the pricing of options in an extended Black Scholes economy in which the underlying asset is not perfectly liquid. The resulting liquidity risk is modeled as a stochastic supply curve, with the transaction price being a function of the trade size. Consistent with the market...