Arbeitspapier
Liquidity derivatives
It is well established that investors price market liquidity risk. Yet, there exists no financial claim contingent on liquidity. We propose a contract to hedge uncertainty over future transaction costs, detailing potential buyers and sellers. Introducing liquidity derivatives in Brunnermeier and Pedersen (2009) improves financial stability by mitigating liquidity spirals. We simulate liquidity option prices for a panel of NYSE stocks spanning 2000 to 2020 by fitting a stochastic process to their bidask spreads. These contracts reduce the exposure to liquidity factors. Their prices provide a novel illiquidity measure reflecting cross-sectional commonalities. Finally, stock returns significantly spread along simulated prices.
- Sprache
-
Englisch
- Erschienen in
-
Series: SAFE Working Paper ; No. 358
- Klassifikation
-
Wirtschaft
Asset Pricing; Trading Volume; Bond Interest Rates
Contingent Pricing; Futures Pricing; option pricing
Financial Forecasting and Simulation
- Thema
-
Asset Pricing
Market Liquidity
Liquidity Risk
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Bagnara, Matteo
Jappelli, Ruggero
- Ereignis
-
Veröffentlichung
- (wer)
-
Leibniz Institute for Financial Research SAFE
- (wo)
-
Frankfurt a. M.
- (wann)
-
2022
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:43 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Bagnara, Matteo
- Jappelli, Ruggero
- Leibniz Institute for Financial Research SAFE
Entstanden
- 2022
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