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João Amaro de Matos and Paula Antão
''Super-replicating Bounds on European Option Prices when the Underlying Asset is Illiquid''
( 2001, Vol. 7 No.1 )
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.
Manuscript Received : Oct 17 2001 Manuscript Accepted : Oct 23 2001

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