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Table Of Contents

Declaration
Copyright Statement
Acknowledgements
Dedication
Introduction
1.1 Evidence of increased interest in liquidity
1.2 A brief history
1.3 Derivative pricing
1.3.1 European options
1.3.2 Arbitrage pricing
1.3.3 The Feynman-Kac representation theorem
1.3.4 From Feynman-Kac to Black-Scholes
1.3.5 American options
1.3.6 Optimal stopping problems
1.3.7 Free-boundary problems
1.4 Supply and demand economics
1.5 Liquidity
1.5.1 Defining liquidity
1.5.2 Measuring liquidity
1.6 Price formation
1.7 Option pricing in illiquid markets: a literature
1.8 Introduction to perturbation methods
1.9 Layout of the thesis
The Modelling Framework
2.1 Technical asides
2.1.1 Markovian processes
2.1.2 Applicability of Itˆo’s formula
2.2 Alternative models
2.2.1 Transaction-cost models
2.2.2 Reaction-function (equilibrium) models
2.2.3 Reduced-form SDE models
2.3 A unified framework
2.3.1 Cetin et al. (2004)
2.3.2 Platen and Schweizer (1998)
2.3.3 Mancino and Ogawa (2003)
2.3.4 Lyukov (2004)
2.3.5 Sircar and Papanicolaou (1998)
First-order Feedback Model
3.1 Analysis close to expiry: European options
3.2 Analysis close to expiry: American put op-
3.3 The vanishing of the denominator
Full-feedback Model
4.1 Put-call parity
4.2 A solution by inspection
4.3 Similarity solutions
4.4 Perturbation expansions
4.5 Numerical solutions
4.6 Analysis close to expiry
4.7 Numerical results - full problem
numerical scheme
4.7.1 A second solution regime
and τ = 0.01
5.1 Local analysis about the singularities
5.1.1 Asymptotic matching
5.1.2 Properties of the inner solution
5.1.3 Introduction to phase-plane analysis
5.1.4 Deriving an autonomous system
5.1.5 Behaviour of the fixed points
5.1.6 Structure of the phase portrait
5.1.7 Other fixed points
Perpetual Options
6.1 Analytic solutions and perturbation methods
Other Models
7.1 Frey (1998, 2000)
7.2 Frey and Patie (2002)
7.3 Sircar and Papanicolaou (1998)
7.4 Bakstein and Howison (2003)
7.4.1 Non-smooth solutions to the Bakstein and Howison
7.4.2 New non-smooth solutions to the Black-Scholes equa-
7.5 Liu and Yong (2005)
7.5.1 Vanishing of the denominator
7.6 Jonsson and Keppo (2002)
7.6.1 Connections with the other modelling frameworks
8.1 Linear price impact
8.2 Nonlinear price impact
8.3 A new nonlinear price impact model
9.2 The no-arbitrage price
9.2.1 The gain function
9.3 Numerical treatment
9.4 Free boundary analysis far from expiry
9.5 Analysis close to expiry
9.6 Financial analysis of the British put option
9.7 The British call option
9.7.1 Analysis far from expiry
9.7.2 Analysis close to expiry
9.8 Integral representations of the free boundary
9.8.1 The American put option
9.8.2 The British put option
Conclusions
Maximum Principles
A.1 Nonlinear equations
A.2 Uniqueness of PDEs
A.2.1 The linear Black-Scholes equation
A.2.2 The nonlinear (illiquid) Black-Scholes equation
A.3 Monotonicity in λ
The Probability Density Function
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Kris Glover Analyzing PDEs

Kris Glover Analyzing PDEs

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Published by Sergey Melekhin

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Published by: Sergey Melekhin on Apr 15, 2012
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