A Closed‐Form Formula for Pricing European Options With Stochastic Volatility, Regime Switching, and Stochastic Market Liquidity

• Published in: The journal of futures markets Vol. 45; no. 5; pp. 429 - 440
• Main Authors: He, Xin‐Jiang, Chen, Hang, Lin, Sha
• Format: Journal Article
• Language: English
• Published: Hoboken Wiley Periodicals Inc 01.05.2025
• Subjects: Business cycles; Derivation; Discounting; empirical analysis; Liquidity; Numerical analysis; option pricing; Prices; regime switching; Sensitivity analysis; stochastic liquidity; stochastic volatility; Stock prices; Volatility

ABSTRACT We consider European option pricing when the volatility of the underlying stock is stochastic and affected by economic cycles. We further assume that market liquidity risks have a significant impact on the price of the stock that is not negligible, and stock prices should be adjusted accord...