Doctor of Philosophy (PhD)
First Committee Member
Michael D. Marcozzi
Second Committee Member
Third Committee Member
Fourth Committee Member
Number of Pages
Valuation of financial derivatives subject to liquidity risk remains an open problem in finance. This dissertation focuses on the valuation of European-style call option under limited market liquidity through the dynamic management of a portfolio of assets. We investigate liquidity from three perspectives: market breadth, depth, and immediacy. We present a general framework of valuation based on the optimal realization of a performance index relative to the set of all feasible portfolio trajectories. Numerical examples are then presented and analyzed that show option price increases as the market transitions from liquid to less liquid state. Furthermore, buying and selling activities, based on our optimal trading strategy, decrease as the market becomes less liquid because the gain from more frequent rebalancing of the portfolio is not able to offset the liquidity risk.
Corporations – Valuation; Hamilton-Jacobi Equations; Liquidity (Economics); Option; Securities industry; Stock exchanges
Finance | Mathematics | Partial Differential Equations | Portfolio and Security Analysis
Jiang, Yanan, "Valuation of Financial Derivatives Subject to Liquidity Risk" (2012). UNLV Theses, Dissertations, Professional Papers, and Capstones. 1581.