Illiquidity of Stocks Impacts Derivatives Pricing, Revealing Asymmetric Spread Behavior.
The article explores how the difficulty of trading a stock affects the pricing of derivatives like options. It shows that when a stock is hard to trade, it creates a difference between the buying and selling prices of options on that stock. This difference is not the same on both sides of the option price. This explains why there is a pattern in option prices that looks like a smile when you estimate how risky the stock is from the prices people are willing to buy and sell options for.