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BLOG. 1 min read

Market Liquidity Risk Management: Interactive Stress-Testing Analytics

In today’s financial markets, asset management organizations need to develop risk management strategies that go beyond market risk analysis. These strategies should incorporate the monitoring of different risk types, including market, credit, and liquidity risks. In the current investment landscape, it is not sufficient for risk managers to provide detailed market risk limits. They must collaborate with portfolio managers to steer portfolios within agreed risk boundaries and help them assess market trading capacities.

Whether motivated by local regulatory evolutions or by fund managers seeking to better implement their investment strategies, it means that buy-side risk management teams need to monitor the evolution of market liquidity on an ongoing basis. This more systematic assessment of liquidity risks across asset classes and product types drives demand for new, specific market data as well. This is for example the case for listed corporate bond markets. This daily monitoring requirement also pushes investment management stakeholders to reconsider processes designed to first address large-scale, static reporting requirements. It often implies that ad-hoc interactive tools shall be put in place to support these functional needs.

In the context of our latest research report, we propose a market liquidity risk solution aimed at asset management risk specialists supporting their front-office team members. It is based on an open market liquidity risk modeling approach that combines external data points, and in-house transformation steps. Consistent with the SS&C Algorithmics “Mark-To-Future” approach, this solution uses the same market risk architecture and overall workflow to populate interactive market liquidity risk dashboards. These integrated dashboards allow users to investigate various “current” and “stressed” liquidity measures at instrument, position, and portfolio levels. We list some future research directions in the conclusion of this study as well.

To learn more about the proposed market liquidity risk monitoring framework, download our "Liquidity Stress Testing for Market Risk Management" whitepaper.

Contact us to learn how you can use SS&C Algorithmics’ risk analytics solutions to incorporate market liquidity risk considerations into the broader risk management process of your investment teams.

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