Riskdata liquidity risk model

by Riskdata, 2015

Following UCITS and AIFMD liquidity reporting rules, one should report the portion of the managed portfolio one can liquidate within various timeframes, “without significant impact on market prices”. This latter condition implies certain constraints on the liquidation process, which we can express in terms of maximum selling speed with respect to the Average Daily Volume (ADV) of each position, or in terms of an estimated cost of liquidation resulting from its impact on market prices.

“Liquidation” means unwinding positions, whether long or short, that is, selling long positions and buying back short ones.

Riskdata’s Liquidity Module aims at evaluating the percentage of portfolio that can be liquidated at various horizons, under either selling speed constraints or cost constraints, in both normal and in liquidity-stressed environment market conditions. Liquidity-stressed environment means that the usual estimated Average Daily Volume (ADV) can no longer be used as a reference for asset liquidity and a reduced figure is to be applied. The Module separately reports the liquidity of long positions, short positions and, finally, the aggregated total portfolio.