Liquidity Models in Continuous and Discrete Time

The study of liquidity in financial markets either invokes the ease with whichfinancial securities can be bought and sold, or addresses the ability to tradewithout triggering important changes in asset prices. More specifically, onecan think of liquidity as an exogenous measure of the added costs per transactionassociated to trading large quantities of the asset. This is the approachadvocated by Cetin et al. [9], in which an exogenously defined supply curvegives the price per share as a function of transaction size. On the other hand,one can take this idea a step further and recognize that these added costs arethe product of imbalances in the supply and demand of the asset due to thetrading of large quantities.[...]