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Liquidity Risk - Relevance to Actuaries [20]

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Bullet points include: Very difficult to measure price or value that market places on liquidity in isolation. Relevant market observables depend on other risks that also cannot be observed in isolation, e.g. ‘pure’ credit risk. Is the correct model additive or multiplicative? Difference might be >20% of value! Decomposition of average corporate bond spreads into different elements (average A rated credit spreads). Additive. Multiplicative.

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