RT Journal Article
SR Electronic
T1 Practical Applications of Forced Liquidations, Fire Sales, and the Cost of Illiquidity
JF Practical Applications
FD Institutional Investor Journals
SP 1
OP 5
DO 10.3905/pa.2016.3.4.148
VO 3
IS 4
A1 Richard R. Lindsey
A1 Andrew B. Weisman
A1 Gauri Goyal
YR 2016
UL https://pm-research.com/content/3/4/1.6.abstract
AB Forced Liquidations, Fire Sales, and the Cost of Illiquidity Richard R Lindsey Andrew B Weisman Many investors do not understand the true risk—or cost—of illiquidity until a forced liquidation or fire sale occurs. Then it’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’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