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Open AccessArticle

Hedging with Liquidity Risk under CEV Diffusion

by 1,† and 2,*,†
1
Asset Management Department, Daishin Securities, Seoul 06131, Korea
2
Department of Statistics, Purdue University, West Lafayette, IN 47907, USA
*
Author to whom correspondence should be addressed.
These authors contributed equally to this work.
Risks 2020, 8(2), 62; https://doi.org/10.3390/risks8020062
Received: 30 April 2020 / Revised: 23 May 2020 / Accepted: 1 June 2020 / Published: 5 June 2020
We study a discrete time hedging and pricing problem in a market with the liquidity risk. We consider a discrete version of the constant elasticity of variance (CEV) model by applying Leland’s discrete time replication scheme. The pricing equation becomes a nonlinear partial differential equation, and we solve it by a multi scale perturbation method. A numerical example is provided. View Full-Text
Keywords: discrete time hedging; liquidity risk; asymptotic expansion; CEV diffusion discrete time hedging; liquidity risk; asymptotic expansion; CEV diffusion
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MDPI and ACS Style

Park, S.-H.; Lee, K. Hedging with Liquidity Risk under CEV Diffusion. Risks 2020, 8, 62. https://doi.org/10.3390/risks8020062

AMA Style

Park S-H, Lee K. Hedging with Liquidity Risk under CEV Diffusion. Risks. 2020; 8(2):62. https://doi.org/10.3390/risks8020062

Chicago/Turabian Style

Park, Sang-Hyeon; Lee, Kiseop. 2020. "Hedging with Liquidity Risk under CEV Diffusion" Risks 8, no. 2: 62. https://doi.org/10.3390/risks8020062

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