estimated using this maximum price should be the outer
bound for the value of illiquidity.
33 Using this approach, Longstaff estimates how much
marketabilitywouldbeworthasapercentofthevalueofan
assetfordifferentilliquidityperiodsandassetvolatilities.The
results are graphed inFigure 14.3.
FIGURE 14.3 Upper Bounds on Marketability
Discount—Option Pricing Model
Source:Longstaff (1995).
Itisworthemphasizingthattheseareupperboundsonthe
valueofilliquiditysinceitisbasedontheassumptionofa
perfectmarkettimer.Totheextentthatinvestorsareunsure
aboutwhenanassethasreacheditsmaximumprice,thevalue
ofilliquidity willbe lower thantheseestimates.Themore
generallessonswillstillapply.Thecostofilliquidity,stated