© Brammertz Consulting, 2009 1 Date: 03.07.22 Unified Financial Analysis Risk & Finance Lab Chapter 8: Financial Events and Liquidity Willi Brammertz / Ioannis Akkizidis
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© Brammertz Consulting, 2009 1Date: 20.04.23
Unified Financial AnalysisRisk & Finance Lab
Chapter 8: Financial Events and Liquidity
Willi Brammertz / Ioannis Akkizidis
© Brammertz Consulting, 2009 2Date: 20.04.23
From input to analysis elements
Cost
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Time to Maturity
Volatility in t0 ()Yield
Static analysis (liquidation view)Type I and II analysis
TimeLiabilities
Assets
t0
Existing Business
Existing Business
NPV
wbrammer
Here we should add a small liquidity gap, since liquidity is the prime target.
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Liquidation viewSome thoughts
> Concept is trading floor related (sell to the last fool)
> What is value under a strict liquidation view?
> How much can markets change if Δt = 0?
> Real life is going concern
> Why is liquidation view still a valid concept?
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Contract events and cash flows
> Contract events are the expression of the input elements on the time line given a state of the risk factors (state contingent cash flows)
> Contract events are a level higher than cash-flows
> Contract events are interpreted in two principally different ways
Rock bottom ofFinance
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Importance of event level
> Rock bottom: The event level contains all information that is possible in finance
> Precondition: The input elements must be rich
> Contracts and behavior as open dimensions
> All financial contracts are homogenous on the event level
> E.g. a saving contract and an option „are equal“!
> Question: Where are the events in option pricing?
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The five analysis elements
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Liquidity vs value view
Liquidity ZES (Chapter 10)
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List of important event types(RiskPro™)
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Events on the time lineExample: Variable annuity
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Mathematics kicks in only after the explicitrepresentation of the events.
Example of events
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Example 1: Money market
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Example 2: Fixed bond
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Example 3: RGM with draw down
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Example 4: Variable rate bond
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Example 5: Variable annuityPattern
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Example 5: Variable annuityEvents
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> A swap is the simple sum of two basic contracts(example 2 + example 4)
Example 6: Swap
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Example 6: Swap
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Example 7: FRA
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Example 8: Effect of behavior
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Liquidity gap
> Cash management vs. Liquidity gap
> Gap: numerical or graphical representation of liquidity flows on the time line
> Needs definition of time buckets
> Calculation:
> Sum expected cash flows (forward scenario) over all relevant contracts
> Group per time bucket
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Example: Liquidity gap resultsData: Examples 1-6
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Marginal and cumulative liquidity gap
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