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Implied Liquidity - Towards Stochastic Liquidity Modeling and Liquidity Trading


José Manuel Corcuera


University of Barcelona - Faculty of Mathematics

Florence Guillaume


KU Leuven

Dilip B. Madan


University of Maryland - Robert H. Smith School of Business

Wim Schoutens


KU Leuven - Department of Mathematics
October 15, 2010


Abstract:     
In this paper the authors introduce the new concept of implied liquidity on the basis of the recent developed two-way price theory (conic finance). Implied liquidity isolates and quantifies in a fundamental way liquidity risk in financial markets. It is shown on real market option data on the major US indices how liquidity dried up in the troubled year end of 2008. These investigations open the door to stochastic liquidity modeling, liquidity derivatives and liquidity trading.

Number of Pages in PDF File: 11

Keywords: Liquidity, bid-ask pricing, conic finance

JEL Classification: C00

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Date posted: February 14, 2011  

Suggested Citation

Corcuera, José Manuel, Guillaume, Florence, Madan, Dilip B. and Schoutens, Wim, Implied Liquidity - Towards Stochastic Liquidity Modeling and Liquidity Trading (October 15, 2010). Available at SSRN: http://ssrn.com/abstract=1761253 or http://dx.doi.org/10.2139/ssrn.1761253

Contact Information

José Manuel Corcuera Valverde
University of Barcelona - Faculty of Mathematics ( email )
Gran Via de les Corts
Catalanes 585
Barcelona 08007
Spain
Florence Guillaume
KU Leuven ( email )
Leuven, Vlaams-Brabant 3000
Belgium
Dilip B. Madan
University of Maryland - Robert H. Smith School of Business ( email )
College Park, MD 20742-1815
United States
301-405-2127 (Phone)
301-314-9157 (Fax)
Wim Schoutens (Contact Author)
KU Leuven - Department of Mathematics ( email )
Celestijnenlaan 200 B
Leuven, B-3001
Belgium
Feedback to SSRN (Beta)


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