Thu, Apr 19, 2018
A A A
Welcome Guest
Free Trial RSS
Get FREE trial access to our award winning publications
Alternative Market Briefing

Other Voices: Liquidity: Volatility analogs, how to compare hedge funds with different redemption frequencies

Thursday, April 09, 2009

This article was authored by Bryan Goh, First Avenue Partners LLP, London.

In 2008, investors quickly became acquainted with the concept of liquidity, or the lack of it. But what do we mean by liquidity, and how do we price it?

Liquidity premia are already priced in some markets such as the treasury market where the spread between on and off the runs is the implied liquidity premium. But how about markets where you have a single asset and there is no concept of off and on the runs? I would like to look at liquidity from the point of view of option implied volatility in order to understand the relationship between volatility and liquidity in more detail. There are two effects at play which are somewhat inter-related which complicates how we think of the dynamics between volatility and liquidity. I would also like to think of these relationships in a non-mathematical way to avoid the complexities that mathematical rigor would introduce. Let’s just get the picture right before we go further.

Volatility tends to rise in liquidity crises. There are two possibilities here. The first is that volatility increases with decreasing liquidity. The second is that the unobserved continuous time volatility is unchanged but that decreased liquidity results in prices being observable with lower frequency (a......................

To view our full article Click here

Today's Exclusives Today's Other Voices More Exclusives
Previous Opalesque Exclusives                                  
More Other Voices
Previous Other Voices                                               
Access Alternative Market Briefing

 



  • Top Forwarded
  • Top Tracked
  • Top Searched
  1. Investing - Sequoia takes Facebook stake as shares slide in data controversy, $1.4b hedge fund sees intact fundamentals for Facebook, Jim Cramer reveals some 'suggested hedge fund trades' amid the Trump tariffs[more]

    Sequoia takes Facebook stake as shares slide in data controversy From Bloomberg.com: The $4.2 billion Sequoia Fund bought a small position in Facebook Inc. as the stock slid late in the first quarter, investment manager Ruane, Cunniff & Goldfarb told clients. "The recent controversy enab

  2. Activist Investors - Blue Sky-owned Wild Breads faces uncertain future[more]

    From AFR.com: A Blue Sky private equity investment in artisan-style baker Wild Breads enjoyed multiple valuation upgrades despite losing millions and breaching its lending covenants, accounts lodged with the regulator last week show. Wild Breads lost $2.4 million in 2017, but Blue Sky ascribed a hig

  3. Opalesque Exclusive: Barnegat to close hedge fund to outside investors on weak opportunities[more]

    Komfie Manalo, Opalesque Asia: Bob Treue's Barnegat Fund Management said it is closing its $666m fixed income relative value hedge fund to outside investors. "The negative side to gains in Fixed Income Arbitrage is that unless we find new opportunit

  4. Investing - Hedge fund makes a big bet on malls, British hedge fund manager Odey short UK government bonds on QE bet[more]

    Hedge fund makes a big bet on malls From Barrons.com: The dominant narrative on American shopping malls is that they're dead. Crushed by Amazon.com, many brick-and-mortar retail stores are destined for bankruptcy. And where is the most retail, clustered all together? Malls. From a

  5. Performance - Hedge funds suffer first back-to-back loss in two years, Netflix performance burns hedge fund short sellers, Macro hedge fund up 14.5% in first quarter sees dollar falling, Renaissance Technologies rebounds across hedge funds in March[more]

    Hedge funds suffer first back-to-back loss in two years From Bloomberg.com: Hedge Fund returns sank for a second straight month in March, the first back-to-back loss since the first two months of 2016, as trade wars, tech-sector woes and a Fed rate hike dragged down the S&P 500 from its