Kraft, Holger; Kühn, Christoph - In: Journal of Economic Dynamics and Control 35 (2011) 11, pp. 1898-1915
In this article, we study the effects on derivative pricing arising from price impacts by large traders. When a large … trader issues a derivative and (partially) hedges his risk by trading in the underlying, he influences both his hedge … portfolio and the derivative's payoff. In a Black–Scholes model with a price impact on the drift, we analyze the resulting trade …