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Estimation of Liquidity Cost in Financial Markets

Lim, Jo-Han   (Department of Applied Statistics, Yonsei UniversityUU0000936  ); Lee, Ki-Seop   (Department of Mathematics, University of LouisvilleUU0017367  ); Song, Hyun-Seok   (Yurie Asset Management Company  );
  • 초록

    The liquidity risk is defined as an additional risk in the market due to the timing and size of a trade. A recent work by Cetin et ai. (2003) proposes a rigorous mathematical model incorporating this liquidity risk into the arbitrage pricing theory. A practical problem arising in a real market application is an estimation problem of a liquidity cost. In this paper, we propose to estimate the liquidity cost function in the context of Cetin et al. (2003) using the constrained least square (LS) method, and illustrate it by analyzing the Kellogg company data.


  • 주제어

    Constraint least square .   liquidity cost .   semi-parametric model.  

  • 참고문헌 (16)

    1. Cetin, U., Jarrow, R. A. and Protter, P. (2003). Liquidity risk and arbitrage pricing model. Finance and Stochastics, 8, 311-341 
    2. Boyd, S. and Vandenberghe, L. (2003). Convex Optimization. Cambridge University Press 
    3. Tse, Y. and Xiang, J. (2005). Asymmetric liquidity and asymmetric volatility. www.fma.org/ Chicago/Papers/Asymmetric_Liquidity_and_Asymmetric_Volatility.pdf 
    4. Muranaga, J. and Ohsawa M. (2003). Measurement of liquidity risk in the context of market risk calculation. http://www.bis.org/publ/ecsc07j.pdf 
    5. Van de Panne, C. (1975). Methods for Linear and Quadratic Programming. North-Holland Publishing Company, Amsterdam 
    6. Lofberg, J. (2003). YALMIP. Yet Another LMI Parser. Version 2.4. Available from http://control.ee.ethz.ch/-joloef/yalmip.php 
    7. MOSEK ApS (2002). The MOSEK Optimization Tools Version 2.5. User's Manual and Reference. Available from www.mosek.com 
    8. Grant, M., Boyd S. and Ye, Y. (2005). cvx: Matlab software for disciplined convex program-ming. Available from www.stanford.edu/-boyd/cvx/ 
    9. Houeweling, P., Mentink, A. and Vorst, T. (2003). How to measure corporate bond liquidity. http://www.tinbergen.nl/discussionpapers/03030.pdf 
    10. Karmarkar, N. (1984). A new polynomial-time algorithm of linear programming. Combinatorica, 4, 374-495 
    11. Frino, A., Mollica, V. and Walter, T. (2003). Asymmetric price behaviour surrounding block trades: A market microstructure explanation. http://www.cls.dk/caf/wp/wp-154.pdf 
    12. Dantzig, G. B. (1963). Linear Programming and Extensions. Princeton University Press, Princeton, New Jersey 
    13. Datar, V., Naik, N. and Radcliffe, R. (1998). Liquidity and stock returns: An alternative test. Journal of Financial Markets, 1, 203-219 
    14. Boggs, P. T., Domich, P. D. and Rogers, J. E. (1996). An interior point method for general large-scale quadratic programming problems. Annals of Operations Research, 62, 419-437 
    15. Fleming, M. J. (2002). Are larger treasury issues more liquid? Evidence from bill reopenings. Journal of Money, Credit, and Banking, 3, 707-735 
    16. Geyer, C. (1991). Constrained maximum likelihood exemplified by isotonic convex logistic regression. Journal of the American Statistical Association, 86, 717-724 
  • 이 논문을 인용한 문헌 (1)

    1. 2009. "" 한국통계학회 논문집 = Communications of the Korean Statistical Society, 16(4): 639~645     

 저자의 다른 논문

  • Lee, Ki-Seop (2)

    1. 2016 "Asymptotic computation of Greeks under a stochastic volatility model" Communications for statistical applications and methods = 한국통계학회논문집 23 (1): 21~32    

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