Download this Paper Open PDF in Browser

Implied Liquidity - Towards Stochastic Liquidity Modeling and Liquidity Trading

11 Pages Posted: 14 Feb 2011  

José Manuel Corcuera

University of Barcelona - Faculty of Mathematics

Florence Guillaume

University of Antwerp

Dilip B. Madan

University of Maryland - Robert H. Smith School of Business

Wim Schoutens

KU Leuven - Department of Mathematics

Date Written: 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.

Keywords: Liquidity, bid-ask pricing, conic finance

JEL Classification: C00

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

José Manuel Corcuera Valverde

University of Barcelona - Faculty of Mathematics ( email )

Gran Via de les Corts
Catalanes 585
Barcelona 08007
Spain

Florence Guillaume

University of Antwerp ( email )

Prinsstraat 13
Antwerp, 2000
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

Paper statistics

Downloads
347
Rank
71,591
Abstract Views
1,291