11 Pages Posted: 14 Feb 2011
Date Written: October 15, 2010
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.
Keywords: Liquidity, bid-ask pricing, conic finance
JEL Classification: C00
Suggested Citation: Suggested Citation
Corcuera, José Manuel and Guillaume, Florence and Madan, Dilip B. and Schoutens, Wim, Implied Liquidity - Towards Stochastic Liquidity Modeling and Liquidity Trading (October 15, 2010). Available at SSRN: https://ssrn.com/abstract=1761253 or http://dx.doi.org/10.2139/ssrn.1761253