Thu, Oct 27, 2016
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. North America - Hedge-fund manager Kyle Bass says the U.S. is on track for stagflation, Billionaire hedge fund titans Dinan, Lasry on election, markets and best investment ideas[more]

    Hedge-fund manager Kyle Bass says the U.S. is on track for stagflation From Kyle Bass, founder of Hayman Capital Management, on Wednesday warned that the U.S. is headed toward so-called stagflation. Stagflation is typically described as persistently high inflation and hi

  2. David Einhorn speaks on passive investing, Mylan, his cheapest stock, the Fed[more]

    From Greenlight Capital hedge fund manager David Einhorn (Trades, Portfolio) joined nine other famed investors on Tuesday to talk about stocks at the annual Great Investors’ Best Ideas Investment Symposium in Dallas. Presenters at the annual conference typically pitch one or severa

  3. Investing - Fund set up to buy illiquid hedge fund stakes finds plenty of opportunities, Lansdowne's Roden says likes animal genetics company Genus[more]

    Fund set up to buy illiquid hedge fund stakes finds plenty of opportunities From As ValueWalk reported back in February, earlier this year Andrew Lawrence set out to raise $250 million to $500 million for a fund that will buy stakes in hedge funds that have suspended redem

  4. Other Voices: Follow the advice of investment consultants - I think not[more]

    Mark Rzepczynski, Founding Partner, Chief Investment Officer AMPHI Research and Trading, writes on Harvest Exchange: Investment consultants are a force to the reckoned with in the pension world. They advise and drive many pension decisions around the globe. Consultants literally control trillion

  5. Opalesque Roundtable: Style drift, poor communications and credibility fatigue are biggest red flags for hedge funds investors[more]

    Komfie Manalo, Opalesque Asia: Style drift, poor communications and credibility fatigue are the biggest red flags for hedge funds investors, said participants of the latest 2016 Opalesque Investor Roundtable, sponso