Liquidity Risk

Analyze and manage risk associated with liquidity constraints

Liquidity risk is the potential for investment loss when an asset or financial instrument cannot be traded within a given timeframe.

Liquidity risk can be classified into two types:

• Funding liquidity risk – the loss incurred when a financial institution is unable to settle its obligations with immediacy
• Market liquidity risk – the expected loss incurred when trading an asset for cash

Leading financial institutions use MATLAB to build models that manage liquidity risk. MATLAB toolboxes, such as those for statistics and econometrics, support risk management tasks, enabling you to:

• build customized asset-liability management models
• design and price derivatives to hedge liquidity risk
• perform market impact studies
• implement Basel II/III compliant risk systems
• perform Monte Carlo scenario analysis to assess risk exposure from cash flow variations

Examples and How To

• Market Risk Using GARCH, Extreme Value Theory, and Copulas with MATLAB (Webinar)
• Financial Risk Management with MATLAB (Webinar)
• Modeling Tail Data with the Generalized Pareto Distribution (Example)
• Capgemini Helps Clients Develop Economic Capital, Risk, and Valuation Models with MATLAB (User Story)
• Liquidnet Develops Execution Performance Measurement Tool (User Story)
• UniCredit Bank Austria Develops and Rapidly Deploys an Enterprise-Wide Market Data Engine (User Story)
• CalPERS Analyzes Currency Market Dynamics to Identify Intraday Trading Opportunities (User Story)

Software Reference

• Portfolio Value at Risk (Function)
• Brownian Motion Model Objects (Function)
• Vector Autoregressive Models (Documentation)
• Technical Indicators (Documentation)

See also: asset liability modeling, market risk, credit risk, operational risk, risk management, Monte Carlo simulation