Asset liquidity and the valuation of derivative securities |
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Authors: | Yanan Jiang Michael D. Marcozzi |
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Affiliation: | Department of Mathematical Sciences, University of Nevada Las Vegas, 89154-4020, United States |
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Abstract: | We consider the valuation of European-style derivative securities under limited asset liquidity through the dynamic management of a portfolio of assets effected through continuous transaction. The valuation arises from the optimal realization of a performance index relative to the set of all feasible portfolio trajectories. An approximation procedure based upon the method-of-lines finite element method is developed and analyzed; numerical examples are presented in order to demonstrate the viability of the approach. |
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Keywords: | 49L99 35K70 91B28 |
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