BlackScholesmallissa

BlackScholesmallissa is a hypothetical extension of the Black-Scholes option pricing framework that adds parameters to capture microstructural market effects. The name blends Black-Scholes with a suffix indicating a localized adjustment, signaling that the model modifies volatility and drift to better reflect real trading conditions. It is not an established standard, but a pedagogical or exploratory construct used in theoretical discussions and teaching.

In this imagined framework, the option price follows a generalized partial differential equation where instantaneous volatility and drift vary with time and price through an auxiliary Mallissa function. This yields an effective volatility σ_eff(t,S) and a drift correction intended to reflect liquidity, execution costs, and market microstructure. Pricing under the extended dynamics often uses finite differences or Monte Carlo simulation.

Origins are informal; there is no universal specification. As a result, BlackScholesmallissa lacks standardized calibration, and empirical usefulness is limited by identifiability and data requirements. It is mainly a thought experiment to show how market microstructure can alter option values beyond Black-Scholes.

It sits with local volatility, stochastic volatility, and jump-diffusion models as extensions that address theoretical limitations. In practice, it remains primarily pedagogical or speculative rather than a mainstream pricing tool.