option pricing in high volatile illiquid market

This study compares the performance of the classic black-scholes model and the generalized liu and young model in pricing european options and calculating derivatives sensitivities in high volatile illiquid markets. the generalized liu and young model is a more accurate option pricing model that incorporates both the efficacy of the number of invested stocks and the abnormal increase of volatility during a financial crisis for hedging pur- poses and the financial risk management. to evaluate the performance of these models, we use numerical methods such as finite difference schemes and monte-carlo simulation with antithetic variate variance reduction tech- nique. our results show that the generalized liu and young model outper- forms the classic black-scholes model in terms of accuracy, especially in high volatile illiquid markets. additionally, we find that the finite differ- ence schemes are more efficient and faster than the monte-carlo simulation in this model. based on these findings, we recommend using the general- ized liu and young model with finite difference schemes for the european options and greeks valuing in high volatile illiquid markets.