Department of Mathematical Sciences
Colloquium
Friday, September 26th, 2025
11:00AM-11:50AM
Stratton Hall 202
Speaker: Xiaofei Shi, University of Toronto
Title: Illiquidity, Interest Rates, and Asset Prices
Abstract: In this talk we present how the interest rates and the price dynamics of a risky asset depend on the market illiquidity. In particular, with the presence of even small trading costs, the interest rates determined in equilibrium will become stochastic. 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. These tractable approximation formulas match with stylized facts observed in reality. (Joint work in progress with Paolo Guasoni and Johannes Muhle-Karbe.)