Large investor trading impacts on volatility

Lasry, Jean-Michel; Lions, Pierre-Louis

Lasry, Jean-Michel; Lions, Pierre-Louis (2007), Large investor trading impacts on volatility, Annales de l'Institut Henri Poincaré. Analyse non linéaire, 24, 2, p. 311-323. http://dx.doi.org/10.1016/j.anihpc.2005.12.006

Type

Article accepté pour publication ou publié

Date

2007

Journal name

Annales de l'Institut Henri Poincaré. Analyse non linéaire

Volume

Number

Publisher

Elsevier

Pages

311-323

Abstract (EN)

We begin with this paper a series devoted to a tentative model for the influence of hedging on the dynamics of an asset. We study here the case of a “large” investor and solve two problems in the context of such a model namely the question of the fair value (or liquidative value) of a “large” position and the question of pricing or hedging an option. In order to do so, we use a utility maximization approach and some new results in stochastic control theory.

Subjects / Keywords

utility maximization approach; stochastic control theory; hedging; dynamics of an asset

JEL

G1 - General Financial Markets