The Liquidity Discount

Ajay Subramanian and Robert Jarrow ()

Mathematical Finance, 2001, vol. 11, issue 4, 447-474

Abstract: This paper characterizes the liquidity discount, the difference between the market value of a trader's position and its value when liquidated. This discount occurs whenever traders face downward sloping demand curves for shares and execution lags in selling shares. This characterization enables one to modify the standard value at risk (VaR) computation to include liquidity risk.

Date: 2001
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