Technical paper/Liquidity
Dealing with multi-currency inventory risk in FX cash markets
A market-making model that considers correlation, transaction costs and market impact is presented
Optimal turnover, liquidity and autocorrelation
A novel optimal execution approach via continuous-time stochastic processes is introduced
Liquidity stress-testing using optimal portfolio liquidation
A methodology to derive liquidation costs and times in OTC markets is proposed
Monitoring intraday liquidity risks in a real-time gross settlement system
This paper proposes an intraday liquidity risk indicator (LRI) for each participant in a real-time gross settlement system (RTGS).
The trade-off between liquidity risk and counterparty risk in money market networks
The authors examine how liquidity is exchanged in different types of Colombian money market networks (ie, secured, unsecured and the central bank’s repurchase networks) as registered in the local financial market infrastructure.
The price of liquidity in the reinsurance of fund returns
The authors consider a new type of contract for insuring the returns of hedge funds and aim to extend downside protection to an investment portfolio beyond the first tranche of losses insured by first-loss fee structures, which have become increasingly…
Optimal foreign exchange hedge tenor with liquidity risk
The authors develop an optimal currency hedging strategy that allows fund managers who own foreign assets to choose the hedge tenors that will maximize their foreign exchange carry returns within a liquidity risk constraint.
How much liquidity would a liquidity-saving mechanism save if a liquidity-saving mechanism could save liquidity? A simulation approach for Canada’s large-value payment system
This paper investigates how much liquidity requirements can be reduced with the implementation of different LSMs in the Financial Network Analytics simulation engine using LVTS transaction data from 2018.
Estimating maturity profiles of nonmaturing deposits
This paper proposes a method to extract deposit lifetime data from individual account transactions.
Procyclicality and risk-based access: valuing the embedded credit default swap of employing bilateral credit limits in financial market infrastructures
In light of institutional knowledge, this paper presents the similarities between the survivor-pay component (Tranche 2) of the Canadian large-value transfer system (LVTS) and credit default swap (CDS) contracts.
The short-term Danish interbank market before, during and after the financial crisis
This paper studies the microstructure of the short-term uncollateralized Danish interbank market before, during and after the financial crisis, and into an era of negative interest rates.
Networks of common asset holdings: aggregation and measures of vulnerability
This paper quantifies the interrelations induced among financial institutions by common asset holdings.
BV–VPIN: Measuring the impact of order flow toxicity and liquidity on international equity markets
The authors analyze the impact of different values of the VBS and sample size applied as inputs in a BV–VPIN model based on the US market in order to ascertain the optimal criteria for application across all other countries in our data set.
Freeriding on liquidity in the Colombian large-value payment system
The functioning of a large-value payment system (LVPS) can be affected when some of its participants intentionally decide to delay their payments until they can fund them with payments received from other participants. This payment strategy, known as the…
When do central counterparties enhance market stability?
This paper examines the impact of market structure and payment assumptions on the fragility of various networks.
The impact of de-tiering in the United Kingdom’s large-value payment system
The authors conduct a head-to-head comparison of central and bilateral clearing to evaluate the impact of market structure on market stability.
A model for the valuation of assets with liquidity risk
This paper describes a model for the valuation of assets on a bank balance sheet with liquidity risk. It applies the model to single cashflows, loans, bonds and derivatives. In addition, the calibration to London Interbank Offered Rate basis spreads is…
Haircutting non-cash collateral
Wujiang Lou develops a parametric haircut model to conduct sensitivity tests and capture market liquidity risk
Managing market liquidity risk in central counterparties
This paper discusses the different approaches to incorporating market liquidity risk within a CCP’s default waterfall and the challenges that these approaches pose.
Trading lightly: cross-impact and optimal portfolio execution
A liquidity model for basket of correlated securities is presented