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The Liquidity Discount


Ajay Subramanian


Georgia State University

Robert A. Jarrow


Cornell University - Samuel Curtis Johnson Graduate School of Management

Mathematical Finance, Vol. 11, No. 4, pp. 447-474, October 2001

Abstract:     
This paper characterizes the liquidity discount, the difference between the market value of a large 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.

Number of Pages in PDF File: 28

Keywords: Liquidity Risk, Large Trader, Value at Risk

JEL Classification: C61, D40, D81

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Date posted: February 16, 2004 ; Last revised: March 31, 2009

Suggested Citation

Subramanian, Ajay and Jarrow, Robert A., The Liquidity Discount. Mathematical Finance, Vol. 11, No. 4, pp. 447-474, October 2001. Available at SSRN: http://ssrn.com/abstract=501903

Contact Information

Ajay Subramanian (Contact Author)
Georgia State University ( email )
Department of Risk Management and Insurance
P.O. Box 4050
Atlanta, GA 30303
United States
404-413-7483 (Phone)
Robert A. Jarrow
Cornell University - Samuel Curtis Johnson Graduate School of Management ( email )
Department of Finance
Ithaca, NY 14853
United States
607-255-4729 (Phone)
607-254-4590 (Fax)
Feedback to SSRN (Beta)


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