Liquidity Risk (FRM Part 2 2023 - Book 4 - Chapter 1)
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- Опубликовано: 30 июл 2024
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After completing this reading, you should be able to:
- Explain and calculate liquidity trading risk via the cost of liquidation and liquidity-adjusted VaR (LVaR).
- Identify liquidity funding risk, funding sources, and lessons learned from real cases: Northern Rock, Ashanti Gold-fields, and Metallgesellschaft.
- Evaluate Basel III liquidity risk ratios and BIS principles for sound liquidity risk management.
- Explain liquidity black holes and identify the causes of positive feedback trading.
0:00 Introduction
0:43 Learning Objectives
1:53 What is Trading Liquidity Risk?
3:40 Bid-offer Spread
6:25 Tools used to Measure Market Liquidity
8:26 Cost of Liquidation
13:39 Liquidity Funding Risk
15:08 Sources of Liquidity
16:07 Liquidity Crisis at Northern Rock
18:00 Liquidity Crisis at Ashanti Goldfields
20:44 Liquidity Crisis at Metallgesellschaft
22:34 Basel III: Liquidity Coverage Ratio
24:23 BIS Principles for Sound Liquidity Risk Management
28:05 Liquidity Black Hole
29:47 Types of Traders
30:45 Reasons behind Positive Feedback Trading
31:19 BOOK 4 - Liquidity and Treasury Risk FRM Part II Measurement and Management
Thank you Professor James for the great video and explanation. I am now one of the FRM.
Glad it was helpful! If you like our video lessons, it would be appreciated if you could take 2 minutes of your time to leave us a review here: trustpilot.com/review/analystprep.com
You specify that these methods are used by banks (Basel III). But can the methods of risk management also be implemented in for example an airline company (Like; Delta or Emirates), whom also depend heavily on liquidity?
Very correct. The reference chapter mostly focuses on the banking sector, but the same concepts can be used in most industries.
hello i need some help i am looking at polymetal international plc company on yahoo finance and have found the bid and offer price but i am not sure where to find the number of shares in order to work out the cost of liquidation could you please help me?
Hi James. Could you please explain why the cost of liquidation is divided by 2? Can't wrap my head around it.
Thanks :)
It assumes as if the fair price is the mid price, i.e. you could have bought/sold at mid price but because of the spread you can only buy/sell at the ask/bid price. The additional cost is the difference between the mid and bid/ask prices.