LUDKOVSKI, MICHAEL; SHEN, QUNYING - In: International Journal of Theoretical and Applied … 16 (2013) 07, pp. 1350043-1
We study the valuation and hedging problem of European options in a market subject to liquidity shocks. Working within a Markovian regime-switching setting, we model illiquidity as the inability to trade. To isolate the impact of such liquidity constraints, we focus on the case where the market...