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Quantitative Finance · Begrippenlijst

Wat is Funding liquidity risk, market liquidity risk?

Ook bekend als: funding liquidity risk · market liquidity risk

Definition 28.1 The Desk and the Firm · Hoofdstuk 28 — Case Studies I

Funding liquidity risk is the risk that a firm cannot meet its payments and margin calls when they fall due, because its lenders raise haircuts, shorten terms or withdraw, or because its own losses consume its cash. Market liquidity risk is the risk that a firm cannot sell or hedge a position quickly without moving its price against itself, because the position is large against the market’s volume or because other holders are selling at the same time.

The loop that joins the two kinds of liquidity risk: losses raise calls, calls force sales, sales move prices, and moved prices are new losses, for the seller and for everyone who holds the same positions.
Figure 28.1. The loop that joins the two kinds of liquidity risk: losses raise calls, calls force sales, sales move prices, and moved prices are new losses, for the seller and for everyone who holds the same positions.
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