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May 21

New Illiquidity Measure Week in Review

Posted by abiao at 09:17 | Paper Review | Comments(1) | Reads(6953)
Noise as Information for Illiquidity: We propose a measure of liquidity for the overall financial market by exploiting its connection with the amount of arbitrage capital in the market and observed price deviations in US Treasuries.

The Risk Map: A New Tool for Validating Risk Models: This paper presents a new method to validate risk models: the Risk Map. This method jointly accounts for the number and the magnitude of extreme losses and graphically summarizes all information about the performance of a risk model. We show that the Risk Map can be used to validate market, credit, operational, or systemic risk estimates (VaR, stressed VaR, expected shortfall, and CoVaR) or to assess the performance of the margin system of a clearing house.

Deviations from Put-Call Parity and Stock Return Predictability: Deviations from put-call parity contain information about future returns. Using the difference in implied volatility between pairs of call and put options to measure these deviations we find that stocks with relatively expensive calls outperform stocks with relatively expensive puts by 51 basis points per week.

Nassim Taleb on the J.P.Morgan Trading Loss: Nassim Taleb interviewed on the J.P.Morgan Trading Loss (May 2012).

Nice review and awesome video.
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