This paper derives an equilibrium asset pricing model with liquidity risk. Liquidity risk is modeled as a stochastic …, which enables the derivation of the risk-return relation for the stock's expected return including liquidity risk. In … contrast to the traditional models without liquidity risk, there is an additional systematic liquidity risk factor which is …

optimization, as well as liquidity risk, is crucial, as explained in the chapter “Theoretical and practical foundations of … liquidity-adjusted value-at-risk (LVaR): optimization algorithms for portfolio selection and management” of the recently …