Liquidity goes down the drain


Although the liquidity problems that afflicted hedge funds in 2008 have receded, the industry needs to find better ways to understand and manage liquidity risk in order to avoid a repeat of last year’s fiasco.The core problem for hedge funds is the absence of an industry-standard method for defining and measuring liquidity risk. “There are various theories on how to incorporate liquidity risk within a standard risk model like value at risk, but none of these have been widely accep

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