Abstract
We derive super-replicating bounds on European option prices when the underlying asset is illiquid. Illiquidity is taken as the impossibility of transacting the underlying asset at some points in time, generating market incompleteness. We conclude that option price bounds follow a Black-Scholes partial differential equation where the volatility term is adjusted to reflect different levels of illiquidity.
| Original language | English |
|---|---|
| Pages (from-to) | 1-7 |
| Number of pages | 7 |
| Journal | Economics Bulletin |
| Volume | 7 |
| Issue number | 1 |
| Publication status | Published - 1 Dec 2001 |