Large investor trading impacts on volatility (Q1002773)

The paper is the beginning of a series devoted to a model that studies the influence of hedging on the dynamics of an asset. The authors consider the case of a ``large'' investor and solve two problems in the context of such a model. The first one is the question of the fair value (or liquidation value) of a ``large'' position. The second one is the question of pricing or hedging an option. Utility maximization approach and some new results in stochastic control theory are used.