Self-Financing Strategy Expression in Extended Roch-CJP Supply Curve Model

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In this paper, we show a self-financing strategy expression in an extended Roch-CJP supply curve model. Liquidity has been a key issue in options hedging especially since the financial crises. The supply curve model developed by Roch and Cetin et al. is one of the widely recognized approaches incorporating liquidity in derivatives pricing. We extend the Roch-CJP model to include a general form of the supply curve, giving the expression of the self-financing strategy in the extended model. We also show results on the relation between the supply curve and the limit order book density.