[KSCI] Korea Science Citation Index Service

http://dx.doi.org/10.4134/CKMS.2008.23.1.141

NUMERICAL SOLUTIONS OF OPTION PRICING MODEL WITH LIQUIDITY RISK

Lee, Jon-U (DEPARTMENT OF MATHEMATICS SUNGKYUNKWAN UNIVERSITY)
Kim, Se-Ki (DEPARTMENT OF MATHEMATICS SUNGKYUNKWAN UNIVERSITY)

Publication Information

Communications of the Korean Mathematical Society / v.23, no.1, 2008 , pp. 141-151 More about this Journal

Abstract

In this paper, we derive the nonlinear equation for European option pricing containing liquidity risk which can be defined as the inverse of the partial derivative of the underlying asset price with respect to the amount of assets traded in the efficient market. Numerical solutions are obtained by using finite element method and compared with option prices of KOSPI200 Stock Index. These prices computed with liquidity risk are considered more realistic than the prices of Black-Scholes model without liquidity risk.

Keywords

stochastic model; option pricing; liquidity risk; finite element method;

Citations & Related Records

Times Cited By SCOPUS : 0

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