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rayso33
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Posts: 27
Joined: March 23rd, 2009, 8:08 am

How to quantify the liquidity of a bond?

June 11th, 2009, 6:16 am

 
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crmorcom
Posts: 452
Joined: April 9th, 2008, 4:09 pm

How to quantify the liquidity of a bond?

June 11th, 2009, 12:55 pm

I read quite a neat paper last year by Pan, Bao & Wang "Liquidity of Corporate Bonds": http://papers.ssrn.com/sol3/papers.cfm? ... id=1106852.
 
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ntruwant
Posts: 121
Joined: August 3rd, 2004, 9:50 am

How to quantify the liquidity of a bond?

June 12th, 2009, 9:06 pm

under current market conditions its very appropriate to price the illiquidity component in the bond price. Is this your question?
 
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MeMyself
Posts: 14
Joined: June 12th, 2009, 5:43 pm

How to quantify the liquidity of a bond?

June 13th, 2009, 12:00 pm

yeah..I think the question is how would we charge the illiquidity risk in a bond price?
 
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Anthis
Posts: 4313
Joined: October 22nd, 2001, 10:06 am

How to quantify the liquidity of a bond?

June 13th, 2009, 8:26 pm

There are one dozen of papers on this topic. One of them is already mentioned here.
 
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fredba
Posts: 72
Joined: April 29th, 2009, 12:47 pm

How to quantify the liquidity of a bond?

June 18th, 2009, 8:45 am

It is actually the spread you would get to borrow the bond.The hardest to find, the more expensive.The only real risk with illiquid bond is not pricing, it's default --> no way out.
 
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rayso33
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Posts: 27
Joined: March 23rd, 2009, 8:08 am

How to quantify the liquidity of a bond?

June 18th, 2009, 9:01 am

It is a logical question, I only can get the price from the market when I really sell it. However, now, we want to get the price (which consider liquidity, the willing of the price offered by buyer), but I don't want to sell it.We only can estimate by reference trade. but unfortunately, corp bond is so unique and less trade in the market. Until now, what I can do is adjusted the bond price by a certain % on a subjective basis.I read the paper quoted in here, it gave me a insight on the estimation of corp bond spread. But it is difficult to implement or observe daily. And it gave me a point that equity market performance is a one of indicator to predict the spread. That make me more believe or confidence to use equity price to derivate bond spread.
 
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fredba
Posts: 72
Joined: April 29th, 2009, 12:47 pm

How to quantify the liquidity of a bond?

June 19th, 2009, 7:04 am

Bidding is not sustainable because illiquidity affect price.But you should try a correlation between borrowing spread and default spread and I would sometime use analogy to find a reference bond basket and look at correlation.Never said you want to sell it.
 
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crmorcom
Posts: 452
Joined: April 9th, 2008, 4:09 pm

How to quantify the liquidity of a bond?

June 19th, 2009, 1:52 pm

I'm not quite clear what you're after, rayso33. Is it that you have a bond which doesn't trade very often and you want a price for it? Or is this a more general (but not yet very specific) question?fredba, I'm also not quite sure I understand what you are saying about borrowing. You seem to be suggesting that bonds which are hard/expensive to borrow are not liquid so you can use the repo specialness as a proxy for illiquidity. This is not always true: think of the on-the-run 10Y US treasury.
 
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fredba
Posts: 72
Joined: April 29th, 2009, 12:47 pm

How to quantify the liquidity of a bond?

June 26th, 2009, 9:28 am

There is no one unified way to do it, probably, but the same way, I'm finally not sure to understand what you mean by illiquid.The same way, what is the meaning of a price not reflecting a market deal ? (That's a pure opinion of PM)."corp bond is so unique and less trade in the market" In this case, the only reliable option has nothing to do with quant analysis. It is all about evaluating the company value, thus the debt value, if it's not rated, find equivalent company, with correlation sources, and determine your target ASW for the bond. (A basket of reference bond)If you have a Private Equity business in your company, you should get in touch with them. They are doing this everyday.
 
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geneboo
Posts: 53
Joined: November 3rd, 2010, 3:20 am

How to quantify the liquidity of a bond?

June 20th, 2012, 5:28 am

Hi guys. Anybody know where I can land my hands on a copy of Subramanian's "Term Structure Estimation in Illiquid Markets"
 
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geneboo
Posts: 53
Joined: November 3rd, 2010, 3:20 am

How to quantify the liquidity of a bond?

June 20th, 2012, 6:16 am

Ah got it anywayhttp://www.iijournals.com/doi/pdfplus/10.3905/ ... 9292Thanks and sorry if I "spammed".
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