Library Header Image
LSE Research Online LSE Library Services

Modeling liquidity effects in discrete time

Cetin, Umut and Rogers, L.C.G. (2007) Modeling liquidity effects in discrete time. Mathematical Finance, 17 (1). pp. 15-29. ISSN 0960-1627

Download (298kB) | Preview
Identification Number: 10.1111/j.1467-9965.2007.00292.x


We study optimal portfolio choices for an agent with the aim of maximising utility from terminal wealth within a market with liquidity costs. Under some mild conditions, we show the existence of optimal portfolios and that the marginal utility of the optimal terminal wealth serves as a change of measure to turn the marginal price process of the optimal strategy into a martingale. Finally, we illustrate our results numerically in a Cox-Ross-Rubinstein binomial model with liquidity costs and find the reservation ask prices for simple European put options.

Item Type: Article
Official URL:
Additional Information: © 2007 The Authors. Journal compilation © 2007 Blackwell Publishing Inc.
Divisions: Statistics
Subjects: H Social Sciences > HG Finance
Q Science > QA Mathematics
Sets: Departments > Statistics
Date Deposited: 06 Nov 2007
Last Modified: 20 May 2020 01:48

Actions (login required)

View Item View Item


Downloads per month over past year

View more statistics