Illiquidity and Derivative Valuation

@article{Horst2010IlliquidityAD,
  title={Illiquidity and Derivative Valuation},
  author={Ulrich Horst and Felix Naujokat},
  journal={arXiv: Trading and Market Microstructure},
  year={2010}
}
In illiquid markets, option traders may have an incentive to increase their portfolio value by using their impact on the dynamics of the underlying. We provide a mathematical framework within which to value derivatives under market impact in a multi-player framework by introducing strategic interactions into the Almgren & Chriss (2001) model. Specifically, we consider a financial market model with several strategically interacting players that hold European contingent claims and whose trading… 
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