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Liquidity Modelling

Liquidity Modelling

Name: Liquidity Modelling
Brand: Risk Books
SKU: 9781906348465
Price: 1937.50 HKD
Availability: OutOfStock
Author: Robert Fiedler
ISBN: 9781906348465

By Robert Fiedler

Risk Books November 2011

Specifications

ISBN-13: 9781906348465
Publisher: Risk Books
Publication: November 2011
Format: Paperback
Jurisdiction: International ? Countri(es) for reference only

Details

The global financial crisis showed the crippling effect poor liquidity risk management can have on markets and on firms.

In its wake, market practitioners and regulators alike recognise the necessity of effective management of liquidity and assessment of risks. Yet liquidity remains fuzzy even at a conceptual level, and liquidity risk management an emerging discipline.

Liquidity Modelling by Robert Fiedler is a guide on how to model and manage liquidity risk for financial market practitioners.

The author’s practical approach equips the reader with the tools to understand the components of liquidity risk, how they interact and, as a result, to build a quantitative model to display, measure and limit risk.

Liquidity risk is hard to understand. It needs to be broken down into its components and drivers in order to manage and model it successfully.

The market turmoil that began in mid-2007 re-emphasised the importance of liquidity to the functioning of financial markets and the banking sector. In advance of the turmoil, asset markets were buoyant and funding was readily available at low cost. The reversal in market conditions illustrated how quickly liquidity can evaporate and that illiquidity can last for an extended period of time. Financial regulators across the globe are urging institutions to address this dimension of financial risk more comprehensively.

1 Introduction

What is this book about?
Illiquidity risk: a risk type of its own?
Measuring illiquidity risk: what is the problem?
Comparing the measurement of liquidity and other risks
What is covered by this book?

2 Setting the Scene: Why Liquidity Is Important in a Bank

Banks, financial transactions and balance sheets
Income, expense and earnings
The time value of payments
Capital
Value, risk and capital
Conclusions

3 What Is Liquidity Risk?

Illiquidity
Insolvency and illiquidity
Liquidity risk of financial instruments and markets
Liquidity of markets for central bank funds
Liquidity-induced value risk
Capital as a buffer for liquidity risk?
Conclusions

4 Illiquidity Risk: The Foundations of Modelling

Describing the bank’s balance sheet
Measuring illiquidity risk
Conclusion

5 Capturing Uncertainties

Stationary modelling
Dynamic modelling and hypothetical transactions
The role of optionality
Modelling optionality
Conclusions

6 A Template for an Illiquidity Risk Solution

Scenarios
Technical implementation
Inventories and flows
Inventories and flows of transactions
Taxonometry
Conclusion

7 The Counterbalancing Capacity

Liquidity risk requirements
CBC: The problem
FLE and CBC
Building blocks of a technical solution
Solving the problem for classes of securities
Further issues regarding the CBC
Conclusions

8 Intra-Day Liquidity Risk

Liquidity risk and intra-day liquidity risk
The measurement of liquidity risk
The payment process
Measurement of ILR within an enhanced FLE or separately?
ILRS that could be measured with an enhanced FLE
ILRS that go beyond the enhanced FLE
Other issues
Risks related to correspondent banks
Idiosyncratic risks of the payment processes
Mitigation of liquidity risks
Conclusion

9 Liquidity Transfer Pricing and Limits

Basic transfer-pricing concepts
Deterministic costs of the replicating transaction
Transfer pricing of risk
Summary of the pricing components
Liquidity risk limits
Regulatory requirements
Conclusions

10 The Basel III Banking Regulation

Liquidity risk in Basel III
The liquidity coverage ratio
How can a bank improve its LCR?
The net stable funding ratio
How can a bank steer its NSFR?
Conclusions

About the Author

Robert owns and runs Liquidity Risk Corp. which consults on methodology and processes and as well builds prototypes and IT solution for liquidity risk.

In the first half of his career, Robert spent over a decade in the treasury/dealing rooms of numerous international major banks as a money market liquidity manager, trading interest rate products and derivatives. Later he switched to risk management and developed Deutsche Bank Group’s liquidity risk methodology on which he successfully built a global system (LiMA) which measures and limits the bank’s funding liquidity. Moving into software development, Robert became Country Co-ordinator for Germany and Executive Director of ALM and Liquidity Risk Solutions at Algorithmics Inc., Toronto. Subsequently he joined the board of Fernbach Software, Luxemburg where he oversaw the development of ALM, performance measurement, IFRS and liquidity risk software. During this time he constantly developed liquidity methodologies and teached his research results. Jointly with the University of St. Gallen, Switzerland he developed a stochastic model which optimises the risk and return of investing Non-Maturing Assets and Liabilities.

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