Questions tagged [liquidity-risk]

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Liquidity assessment for OTC derivatives

How does a bank assess the liquidity of OTC derivatives such as swaps, options, and forwards, for which there isn't public data regarding trading volume?
SuavestArt's user avatar
2 votes
1 answer

Stressing liquidity (time to liquidate) of a long only equity fund using participation rate or bid ask

My company is looking to launch a new long only global equity fund. The product committee wishes to see a risk analysis covering various risks, including liquidity. The main measure is time to ...
tweedi's user avatar
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1 vote
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Difference between Stop sell and limit sell

Currently studying Market Microstructure. A proposition says that for liquidating a position, we never set a limit sell order, but a stop loss. Practically, shouldn't these be the same (stop loss ...
alexbougias's user avatar
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4 votes
4 answers

Intuitively, why does liquidity premium contribute to bond yield?

According to the Wikipedia, "The upwards-curving component of the interest yield can be explained by the liquidity premium... Liquidity risk premiums are recommended to be used with longer term ...
Will Gu's user avatar
  • 702
2 votes
1 answer

Calculating liquidity risk for private assets?

I am looking at a portfolio of private assets which is a mix of real estate, infrastructure and private equity. These consist of a handful of direct investments in real assets (not a fund of funds) ...
beeba's user avatar
  • 1,074
0 votes
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Cost of liquidation

In the text book on Risk Management by John Hull, The cost of liquidation is defined as one half of spread between bid price and ask price. Investopedia justifies the one half factor by saying that ...
honeybadger's user avatar
2 votes
2 answers

Liquidity Risk - "The wise banker's aphorism"

once I read about the wise banker's aphorism. It says: "Too little liquidity may kill the bank suddenly, but too much liquidity kills the bank slowly and surely". The first part of this sentence is ...
Giano Rugge's user avatar
-1 votes
4 answers

What is the effect of increasing volume depth to stock volatility? [closed]

Say, an investment bank want to hedge its Long Gamma position on its Long Call option by placing limit orders in the exchange. Limit orders result in increasing volume depth. Empirically, what is the ...
Woraphon T's user avatar
1 vote
2 answers

Trading liquidity risk

I am trying to understand trading liquidity risk $\cdots$ "Trading liquidity risk occurs when an entity is unable to buy or sell a security at the market price due to a temporary inability to find a ...
user161976's user avatar
2 votes
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What are the best measures of market liquidity?

Does any single metric provide a convenient way to capture depth, breadth, and resiliency, or to distinguish between transitory and persistent effects (i.e. between the stationary and random walk ...
Andrew Maliska's user avatar
1 vote
1 answer

Distribution of proportional bid-ask-spreads

I already asked this yesterday at "Economics Stack Exchange" but think this question might be better suited here. In the meantime i really tried to solve it by myself, but couldn't find anything what ...
nobody's user avatar
  • 25
0 votes
1 answer

Volume or Volatility?

I've recently been given a project which came with some documentation. In this documentation is a bullet point that reads: Liquidity Risk in Equity, Credit and Vol I'm unsure as to whether vol is ...
Supergoat21's user avatar
3 votes
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Quantitative risk management strategy for a large participant in an illiquid market

Are there any practical quantitative risk management strategies for a large participant in an illiquid market with a few dominant players? By a large partcipant I mean someone who has significant ...
Alexey Kalmykov's user avatar
4 votes
2 answers

which product supports Basel III LCR (liquidity coverage ratio) reporting?

After Jan 2013 change, now the main reporting changes requested from Basel III is LCR, Liquidity Coverage Ratio. Moody's has a product named RiskAuthority (previously Fermat CAD) that is going to ...
athos's user avatar
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12 votes
1 answer

Regression in liquidity risk model of Jarrow/Protter

In the paper "Liquidity Risk and Risk Measure Computation" authors describe a linear supply curve model for liquidity risks in presence of market impact, i.e. impact-affected asset price $S(t,x)$ is ...
Alexey Kalmykov's user avatar
2 votes
2 answers

Liquidity in a market risk model based on historical simulation

I would like to model liquidity effects in my risk model which is based on historical simulation. I would like to develop a practical solution that still captures liquidity effects. Most probably I ...
Richi Wa's user avatar
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