Valuing tradeability in exponential Lévy models
The present article provides a novel theoretical way to evaluate tradeability in markets of ordinary exponential Lévy type. We consider non-tradeability as a particular type of market illiquidity and investigate its impact on the price of the assets. Starting from an adaption of the continuous-time...
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| Format: | Article |
| Language: | English |
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AIMS Press
2020-08-01
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| Series: | Quantitative Finance and Economics |
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| Online Access: | https://www.aimspress.com/article/10.3934/QFE.2020021/fulltext.html |
| _version_ | 1828893410662023168 |
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| author | Ludovic Mathys |
| author_facet | Ludovic Mathys |
| author_sort | Ludovic Mathys |
| collection | DOAJ |
| description | The present article provides a novel theoretical way to evaluate tradeability in markets of ordinary exponential Lévy type. We consider non-tradeability as a particular type of market illiquidity and investigate its impact on the price of the assets. Starting from an adaption of the continuous-time optional asset replacement problem initiated by McDonald and Siegel (1986), we derive tradeability premiums and subsequently characterize them in terms of free-boundary problems. This provides a simple way to compute non-tradeability values, e.g. by means of standard numerical techniques, and, in particular, to express the price of a non-tradeable asset as a percentage of the price of a tradeable equivalent. Our approach is illustrated via numerical examples where we discuss various properties of the tradeability premiums. |
| first_indexed | 2024-12-13T13:53:10Z |
| format | Article |
| id | doaj.art-feab311992584b55b7df005c643f0146 |
| institution | Directory Open Access Journal |
| issn | 2573-0134 |
| language | English |
| last_indexed | 2024-12-13T13:53:10Z |
| publishDate | 2020-08-01 |
| publisher | AIMS Press |
| record_format | Article |
| series | Quantitative Finance and Economics |
| spelling | doaj.art-feab311992584b55b7df005c643f01462022-12-21T23:43:03ZengAIMS PressQuantitative Finance and Economics2573-01342020-08-014345948810.3934/QFE.2020021Valuing tradeability in exponential Lévy modelsLudovic Mathys0Department of Banking and Finance, University of Zurich, Zurich, SwitzerlandThe present article provides a novel theoretical way to evaluate tradeability in markets of ordinary exponential Lévy type. We consider non-tradeability as a particular type of market illiquidity and investigate its impact on the price of the assets. Starting from an adaption of the continuous-time optional asset replacement problem initiated by McDonald and Siegel (1986), we derive tradeability premiums and subsequently characterize them in terms of free-boundary problems. This provides a simple way to compute non-tradeability values, e.g. by means of standard numerical techniques, and, in particular, to express the price of a non-tradeable asset as a percentage of the price of a tradeable equivalent. Our approach is illustrated via numerical examples where we discuss various properties of the tradeability premiums.https://www.aimspress.com/article/10.3934/QFE.2020021/fulltext.htmltradeabilityliquidityexponential lévy processesreal optionsmaturity-randomizationoptimal stoppingfree-boundary problems |
| spellingShingle | Ludovic Mathys Valuing tradeability in exponential Lévy models Quantitative Finance and Economics tradeability liquidity exponential lévy processes real options maturity-randomization optimal stopping free-boundary problems |
| title | Valuing tradeability in exponential Lévy models |
| title_full | Valuing tradeability in exponential Lévy models |
| title_fullStr | Valuing tradeability in exponential Lévy models |
| title_full_unstemmed | Valuing tradeability in exponential Lévy models |
| title_short | Valuing tradeability in exponential Lévy models |
| title_sort | valuing tradeability in exponential levy models |
| topic | tradeability liquidity exponential lévy processes real options maturity-randomization optimal stopping free-boundary problems |
| url | https://www.aimspress.com/article/10.3934/QFE.2020021/fulltext.html |
| work_keys_str_mv | AT ludovicmathys valuingtradeabilityinexponentiallevymodels |