Cetin, Umut 
ORCID: 0000-0001-8905-853X and Rogers, L.C.G.
(2007)
Modeling liquidity effects in discrete time.
Mathematical Finance, 17 (1).
pp. 15-29.
ISSN 0960-1627
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Abstract
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: | http://www.blackwellpublishing.com/journal.asp?ref... |
| Additional Information: | © 2007 The Authors. Journal compilation © 2007 Blackwell Publishing Inc. |
| Divisions: | Statistics |
| Subjects: | H Social Sciences > HG Finance Q Science > QA Mathematics |
| Date Deposited: | 06 Nov 2007 |
| Last Modified: | 02 Apr 2024 21:09 |
| URI: | http://eprints.lse.ac.uk/id/eprint/2844 |
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