Mathematics for Economists

Liquidity modelling

S = minfSjh(h+p)P(D>S) (^0) g=
= min



SjP(D>S) h

h+p



=

= min



Sj 1 P(DS) h

h+p



=

= min



SjP(DS)

p

h+p



=

= minfSjP(DS)αg.

Observe that one must cumulate until we Örst time hit the levelα.