Questions tagged [liquidity-risk]

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47 views

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 ...
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2answers
75 views

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 ...
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4answers
248 views

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 ...
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1answer
101 views

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) ...
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1answer
170 views

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 ...
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2answers
227 views

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 ...
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4answers
131 views

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 ...
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2answers
2k views

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 ...
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0answers
197 views

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 ...
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1answer
743 views

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 ...
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1answer
132 views

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 ...
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0answers
198 views

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 ...
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2answers
436 views

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 ...
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1answer
386 views

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 ...
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2answers
288 views

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 ...