Liquidity risk is not a standalone risk. It derives from the management of all types of exposure, which may result from a firm’s allocation of assets, from its funding strategy, from collateral policies or from any mismanagement of risks. Liquidity risk mitigation is achieved through continuous adjustments of the balance sheet structures; liquidity management tactics ... click here for more details.

In the presence of liquidity risk, the value of portfolios is no longer a linear function of the sum of the weighted prices of each asset. The basis of coherent risk diversification functions, usually represented as P =  ni Ai is no longer true. However, most portfolio management and asset valuation techniques are still based on assumptions from ... click here for more details.

Up until 2007, issues relating to asset and liability structure or balance sheet immunization would essentially boil down to a cost of funding or loss of opportunity. The liquidity crunch made it a survival issue, epitomized by the Northern Rock’s bankruptcy whose funding structure turned unsustainable amid fast-changing market conditions. In the aftermath of the ... click here for more details.

The above analysis leads to the following results. Liquidity risks arise from multiple sources, due to the consequence of multiple operational risks and of their combined effects. Liquidity risks have been identified as the main cause of failure of Tier 1 institutions that were previously thought to be ‘too big to fail’ in 2008 ... click here for more details.