TY - JOUR T1 - Practical Applications of Forced Liquidations, Fire Sales, and the Cost of Illiquidity JF - Practical Applications SP - 1 LP - 5 DO - 10.3905/pa.2016.3.4.148 VL - 3 IS - 4 AU - Richard R. Lindsey AU - Andrew B. Weisman A2 - Goyal, Gauri Y1 - 2016/04/30 UR - https://pm-research.com/content/3/4/1.6.abstract N2 - 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 ER -