A stochastic optimization framework is presented for liquidity risk management which is one of the principle issues facing an asset/liability manager. The various sources of cashflow uncertainty are first introduced. The notion of portfolio risk is then formally defined. The concepts of a risk...

The article deals with the liquidity risk in the banks in the context of the financial crisis. At first, the balance sheet and market liquidity are defined and the main principles of the methods for measuring liquidity risk, which banks use, are identified. Then follow review of main challenges...

Structural liquidity risk is a material risk resulting from the core banking business of taking in short-term deposits and lending out long-term loans, thus allowing a maturity mismatch between assets and liabilities. At some point the long-term loans will require refinancing and the institution...

Banks may be unable to refinance short-term liabilities in case of solvency concerns. To manage this risk, banks can accumulate a buffer of liquid assets, or strengthen transparency to communicate solvency. While a liquidity buffer provides complete insurance against small shocks, transparency...

The traditional approach to the stress testing of financial institutions focuses on capital adequacy and solvency. Liquidity stress tests have been applied in parallel to and independently from solvency stress tests, based on scenarios which may not be consistent with those used in solvency...