A closed-form pricing formula for European options with market liquidity risk

作者：

Highlights：

• A closed-form pricing formula for liquidity-adjusted European options is derived.

• The series solution is obtained with Karhunen–Loève expansion for the OU process.

• The convergence of the series solution is theoretically proved.

摘要

•A closed-form pricing formula for liquidity-adjusted European options is derived.•The series solution is obtained with Karhunen–Loève expansion for the OU process.•The convergence of the series solution is theoretically proved.

论文关键词：European options,Liquidity risk,Discounting factor,Characteristic function,Karhunen–Loève expansion

论文评审过程：Received 29 April 2021, Revised 3 August 2021, Accepted 17 October 2021, Available online 1 November 2021, Version of Record 10 November 2021.

论文官网地址：https://doi.org/10.1016/j.eswa.2021.116128