2012•International Journal of Portfolio Analysis and ManagementOpen access

Implied liquidity: towards stochastic liquidity modelling and liquidity trading

José Manuel Corcuera, Florence Guillaume, Dilip B. Madan, Wim Schoutens

Abstract

In this paper the authors introduce the new concept of implied liquidity based on the recent developed two-way price theory (conic finance).Implied liquidity isolates and quantifies liquidity risk in financial markets.It is shown on real market option data on the major US indices how liquidity dried up in the troubled year end of 2008.These investigations open the door to stochastic liquidity modelling, liquidity derivatives and liquidity trading.

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Available abstract

Key concepts: Market liquidity, Liquidity crisis, Liquidity risk, Accounting liquidity, Dark liquidity, Business, Monetary economics, Liquidity premium