Liquidity modelling
Example
Let the distribution ofDexponential withλ= 2 .Let the penaltyp= 3
and the holding costh=5 and letc= 1 .In the static model
F(S) = 1 exp( 2 S)=
3 1
3 + 5 =
2
8 =
1
4.
exp( 2 S) =
3
4 ,S
= ^1
2 log
3
4
= 0 ,143 84.
Now letβ= 1 / 2 .In this case
F(S) = 1 exp( 2 S)=
3 1
3 +^12 ( 5 1 )
=
2
5.
exp( 2 S) =^3
5
,S= ^1
2
log