Liquidity stress-testing using optimal portfolio liquidation

A methodology to derive liquidation costs and times in OTC markets is proposed


Mike Weber, Bastien Baldacci and Iuliia Manziuk present an optimal portfolio liquidation model based on the locally linear order book framework with an application to liquidity stress-testing on OTC markets, which aims to minimise the trading costs via the choice of liquidation time

The European Securities and Markets Authority (Esma) has set out guidance on liquidity stress-testing supplementary to the existing requirements enshrined in the Alternative

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