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Market liquidity risk: elusive no more : defining and quantifying market liquidity risk

Loebnitz, Kolja (2006) Market liquidity risk: elusive no more : defining and quantifying market liquidity risk.

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Abstract:The concept of market liquidity risk has not been satisfactorily treated in financial literature. Clear definitions as well as an understanding of the phenomenon are lacking. This paper tries to change this by analyzing, defining and measuring the phenomenon that is loosely termed market liquidity risk. After representing a detailed intuitive framework, market liquidity risk is defined as the perceived uncertainty regarding the magnitude of the price concession(s) in excess of the expected value required for an immediate transformation of an asset into cash or cash into an asset under a specific trading strategy. Consequently we analyze the usefulness of quantitative models to capture market liquidity risk for the major asset markets. Finally, we suggest slightly adjusted versions of the Almgren and Chriss (2000) and the Bangia et al. (1999) model. Both models serve different purposes and may easily be implemented in current risk measurement systems.
Item Type:Essay (Master)
Clients:
Rabobank Group
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:https://purl.utwente.nl/essays/582
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