Hedging Through a Limit Order Book with Varying Liquidity

Posted: 20 May 2019

See all articles by Rossella Agliardi

Rossella Agliardi

University of Bologna - Faculty of Mathematical, Physical and Natural Sciences

Ramazan Gencay

Simon Fraser University

Date Written: March 1, 2012

Abstract

We relax the classical price-taking assumption and study the impact of orders of arbitrary size on price when the availability of liquidity is a concern in hedging. Our paper extends the earlier literature, suggesting that an environment with a permanent impact can be viewed as a special case with zero resilience, whereas an environment with a temporary impact can be viewed as a limit case with infinite resilience speed. Furthermore, our results hold for more general stochastic processes for the underlying asset: for example, for a generic Levy process.

Suggested Citation

Agliardi, Rossella and Gencay, Ramazan, Hedging Through a Limit Order Book with Varying Liquidity (March 1, 2012). https://doi.org/10.3905/jod.2014.22.2.032. Available at SSRN: https://ssrn.com/abstract=2035674 or http://dx.doi.org/10.2139/ssrn.2035674

Rossella Agliardi

University of Bologna - Faculty of Mathematical, Physical and Natural Sciences ( email )

Bologna
Italy

Ramazan Gencay (Contact Author)

Simon Fraser University ( email )

Department of Economics
8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada

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