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| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Valuing Tradeability in Exponential Lévy Models |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Quantitative Finance and Economics |
| Publisher | AIMS Press |
| Geographical Reach | international |
| ISSN | 2573-0134 |
| Volume | 4 |
| Number | 3 |
| Page Range | 459 - 488 |
| 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. |
| Free access at | DOI |
| Official URL | https://www.aimspress.com/article/10.3934/QFE.2020021/fulltext.html |
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| Digital Object Identifier | 10.3934/QFE.2020021 |
| Other Identification Number | merlin-id:19553 |
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