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| Type | Working Paper |
| Scope | Discipline-based scholarship |
| Title | Valuing Tradeability in Exponential Lévy Models |
| Organization Unit | |
| Authors |
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| Language |
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| Institution | University of Zurich |
| Series Name | SSRN |
| Number | 3482080 |
| Date | 2020 |
| Abstract Text | 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. |
| Official URL | https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3482080 |
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