@article {Lindsey1, author = {Richard R. Lindsey and Andrew B. Weisman}, editor = {Goyal, Gauri}, title = {Practical Applications of Forced Liquidations, Fire Sales, and the Cost of Illiquidity}, volume = {3}, number = {4}, pages = {1--5}, year = {2016}, doi = {10.3905/pa.2016.3.4.148}, publisher = {Institutional Investor Journals Umbrella}, abstract = {Forced Liquidations, Fire Sales, and the Cost of Illiquidity Richard R Lindsey Andrew B Weisman Many investors do not understand the true risk{\textemdash}or cost{\textemdash}of illiquidity until a forced liquidation or fire sale occurs. Then it{\textquoteright}s too late. Most investors fail to account for forced liquidations and fire sales when estimating their risk-adjusted returns. In Forced Liquidations, Fire Sales, and the Cost of Illiquidity, Richard Lindsey and Andrew Weisman of Janus Capital describe a new barrier option pricing method to adjust returns for the probability that such events will occur.In this interview with Institutional Investor Journals , Lindsey and Weisman discuss how this option pricing method gives investors a practical way to calculate an illiquid investment{\textquoteright}s reported returns, looking beyond serial correlations of returns to enable investors to estimate the probable cost of illiquidity in advance.TOPICS: Exchanges/markets/clearinghouses, VAR and use of alternative risk measures of trading risk, real assets/alternative investments/private equity}, issn = {2329-0196}, URL = {https://pa.pm-research.com/content/3/4/1.6}, eprint = {https://pa.pm-research.com/content/3/4/1.6.full.pdf}, journal = {Practical Applications} }