April 1, 2021Virtual seminar
Equilibrium Asset Pricing with Liquidity Risk
Xiaofei ShiDepartment of Statistics, Columbia University
Abstract
In a risk-sharing economy we study how the price dynamics of an asset depends on its “liquidity”. An equilibrium is achieved through a system of coupled forward-backward SDEs, whose solution turns out to be amenable to an asymptotic analysis for the practically relevant regime of large liquidity. We also discuss how to leverage deep-learning techniques to obtain numerical solutions, and compare them with our asymptotic approximations.
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