[FAM-news] reminder, this week's seminars

Sandra Trenovatz sandra@fam.tuwien.ac.at
Mon, 15 Dec 2003 13:13:11 +0100


Tuesdays and Thursdays, 16:30-18:00,
TU FH, Turm A, 6. Stock, Seminarraum 107

 Tu, 16.12.2003 Umut Cetin                                                   
                Trading in Illiquid Markets 

Classical theories of financial markets assume infinitely liquid 
markets. We study an illiquid market where price paid/received 
depends on the size and the timing of the trade. The prices are not 
necessarily moved by a large trader. Dependency of the price on the 
trade size comes from the imbalance between the supply and the demand 
for the asset. Hence, classical models become a special case. We 
first find the self-financing condition in presence of illiquidities 
and see that the self-financing condition restricts the set of 
allowed trading strategies, i.e. not all predictable trading 
straegies can be used. We then study conditions for no arbitrage. 
Since the set of feasible strategies is shrunk and there is 
furthermore a liquidity cost, the market is no longer complete even 
if there exists a unique martingale measure for the "marginal price" 
of the asset. However, we can get an approximately complete market 
when the martingale measure is unique. In this incomplete market we 
study the problem of optimal investment. 

 by Financial and Actuarial Mathematics, TU Vienna, 2002

For further details (including abstracts) see