This book introduces readers to a new approach to identifying stock market bubbles by using the
illiquidity premium a parameter derived by employing conic finance theory. Further it shows
how to develop the closed form formulas of the bid and ask prices of European options by using
Black-Scholes and Kou models. By using the derived formulas and sliding windows technique the
book explains how to numerically calculate illiquidity premiums. The methods introduced here
will enable readers interested in risk management portfolio optimization and hedging in
real-time to identify when asset prices are in a bubble state and when that bubble bursts.
Moreover the techniques discussed will allow them to accurately recognize periods of
exuberance and panic and to measure how different strategies work during these phases with
respect to calmer periods of market behavior. A brief history of financial bubbles and an
outlook on future developments serve to round out the coverage.
