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For all of you out there interested in Liquidity Risk Analytics (of the Market type)

When you are analysing liquidity risk you have to be aware that there are two classes of the phenomenon, its akin to the demand and supply side of an equilibrium really, with Funding Liquidity (FL) effectively modelling institutional demand for money and Market Liquidity (ML) effectively modelling supply of liquidity. Balance them both and you have the price of liquidity for your institution. See my SAP B2P2 WP for a literature review which summarises this classification neatly I think.

The European Central has been publishing recently working papers which are of relevance to banks and financial institutions considering issues of risk capital modelling and this working paper published this week is of great practical use to anyone modelling the ML side of the equation, Market Liquidity.

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Tags: asymptotix, market liquidity risk


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