A generalized theoretical modelling approach for the assessment of economic-capital under asset market liquidity risk constraints

2011 ◽  
Vol 31 (13) ◽  
pp. 2193-2221 ◽  
Author(s):  
Mazin A.M. Al Janabi
Keyword(s):  
Liquidity Risk ◽  
Market Liquidity ◽  
Economic Capital ◽  
Theoretical Modelling ◽  
Asset Market ◽  
Modelling Approach

Managing Market Liquidity Risk in Central Counterparties

2017 ◽  
Author(s):  
Evangelos Benos ◽  
Michael Wood ◽  
Pedro Gurrola-Perez
Keyword(s):  
Liquidity Risk ◽  
Market Liquidity ◽  
Central Counterparties

Liquidity Risk Premia in Corporate Bond Markets

2012 ◽  
Vol 02 (02) ◽  
pp. 1250006 ◽  
Author(s):  
Frank de Jong ◽  
Joost Driessen
Keyword(s):  
Risk Premium ◽  
Corporate Bonds ◽  
Liquidity Risk ◽  
Risk Premia ◽  
Market Liquidity ◽  
Corporate Bond ◽  
Expected Returns ◽  
Bond Returns ◽  
Treasury Bond ◽  
Investment Grade

This paper explores the role of liquidity risk in the pricing of corporate bonds. We show that corporate bond returns have significant exposures to fluctuations in treasury bond liquidity and equity market liquidity. Further, this liquidity risk is a priced factor for the expected returns on corporate bonds, and the associated liquidity risk premia help to explain the credit spread puzzle. In terms of expected returns, the total estimated liquidity risk premium is around 0.6% per annum for US long-maturity investment grade bonds. For speculative grade bonds, which have higher exposures to the liquidity factors, the liquidity risk premium is around 1.5% per annum. We find very similar evidence for the liquidity risk exposure of corporate bonds for a sample of European corporate bond prices.

scholarly journals Asset Allocation to Optimise Life Insurance Annuity Firm Economic Capital and Risk Adjusted Performance

2008 ◽  
Vol 3 (1-2) ◽  
pp. 187-214 ◽  
Author(s):  
Bruce T. Porteous ◽  
Pradip Tapadar
Keyword(s):  
Life Insurance ◽  
Asset Allocation ◽  
Financial Services ◽  
Stochastic Modelling ◽  
Economic Capital ◽  
Conventional Wisdom ◽  
Low Risk ◽  
Bond Type ◽  
The Impact ◽  
Modelling Approach

ABSTRACTThe impact that asset allocation has on the economic capital and the risk adjusted performance of financial services firms is considered in this article. A stochastic modelling approach is used in conjunction with a life insurance annuity firm illustrative example. It is shown that traditional solvency driven deterministic approaches to financial services firm asset allocation can yield sub optimal results in terms of minimising economic capital or maximising risk adjusted performance. Our results challenge the conventional wisdom that the assets backing life insurance annuities and financial services firm capital should be invested in low risk, bond type, assets. Implications for firms, customers, capital providers and regulators are discussed.

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