Front Office P&L Checks for Illiquid Mkts

RiskUser · August 20th, 2008, 8:09 am

Uncertain Volatility Models - Theory and Application (Robert Buff - I think he worked with Avellaneda???)QuoteOriginally posted by: leehayes81Does the "uncertain parameter approach" only assume the extreme negative results? (I don't know much about it but just googled it quickly and it looks a bit like stress-testing to me).If we started valuing OTCs using the worst-case senario everytime nobody would ever trade!!

hayes · August 20th, 2008, 3:04 pm

Cheers!

pcg · September 1st, 2008, 4:42 am

ultimately is the mid office not authorised to review liquidity in the market and take appropriate valuation adjustments if tere is a concern ? In that case FO marks are perfectly alright with a daily threshhold for valuation difference between what mid office considers market (broker average ?) ..There are always lead lag effects between a particular FO quote and general market .. as long as the fair value adjustments can cover the worst quote that may be possible to unwind at one should be fine..

quantnewb · May 7th, 2009, 10:33 am

hey gmike2000, are you still around? how do you like the government making it LEGAL for firms to not mark to market? lol. i bet you that's the main reason why Citadel recently became an investment bank. as an investment bank, citadel will also be able to "mark to model" and therefore not report losses when they have one. damn it feels good to be a banker!

quantnewb · May 7th, 2009, 10:50 am

leehayes81, let me guess, you're still marking at par those Albuquerque, New Mexico mortgage CDOs that you bought in 2007. how about the unsecured debt from the now bankrupt company Linens n Things? par because your model says so?oh yeah nothing is wrong with that - unless investors want their money back.

parijat · May 8th, 2009, 8:19 pm