The liquidity discount

Authors
Subramanian, A Jarrow, RA
Citation
A. Subramanian et Ra. Jarrow, The liquidity discount, MATH FINANC, 11(4), 2001, pp. 447-474
Citations number
19
Categorie Soggetti
Economics
Journal title
MATHEMATICAL FINANCE
ISSN journal
09601627 → ACNP
Volume
11
Issue
4
Year of publication
2001
Pages
447 - 474
Database
ISI
SICI code
0960-1627(200110)11:4<447:TLD>2.0.ZU;2-4
Abstract
This paper characterizes the liquidity discount, the difference between the market value of a trader's position and its value when liquidated. This di scount occurs whenever traders face downward sloping demand curves for shar es and execution lags in selling shares. This characterization enables one to modify the standard value. at risk (VaR) computation to include liquidit y risk.