Model Risk - Illiquidity

Being Sunday and a brilliant day to boot, I decided to go to Holyrood Park. Climbed the first hill (well, midway) and because it was almost 1 pm, decided to have lunch and enjoy the sun there. With a view over the park, most of Edinburgh and the sea (well I think it is the sea), I finished lunch and started to enjoy my book on quantitative risk management. Amidst VaR and loss functions, the chapter I was reading discussed the importance of model risk in risk management. One of these is actually the ability (or inability) to capture the illiquidity of the situation. It gave the example of LTCM but I was thinking of the current situation of the bailout and the challenges the Fed face in pricing the bad assets when the market's liquidity is almost nil. The book gave a few references of works done to include this liquidity/illiquidity as a risk factor. Managed to get two of the papers and hopefully read them soon. Very interesting, indeed.