Strategic Allocation to Less Liquid Assets

I-VW-HSG Trendmonitor 4-2014

4 Pages Posted: 29 Nov 2014 Last revised: 16 Dec 2014

See all articles by Felix Schlumpf

Felix Schlumpf

Zurich Insurance Company Ltd

Catalina Martínez Gutiérrez

University of Geneva - Geneva Finance Research Institute (GFRI)

Date Written: November 28, 2014

Abstract

We propose a model to help investors address liquidity questions in strategic asset allocation decisions. We consider various dimensions of liquidity, such as market and funding liquidity, as well as the dynamic nature of liquidity risk and return. Our framework can be particularly useful to help liability-driven investors such as insurance companies and pension funds to utilize their comparative advantage in investing in less liquid assets. We provide a methodology to measure liquidity risk capacity that any investor can use to unlock the liquidity premium in a transparent and robust way without incurring extra risk.

Keywords: liquidity risk, funding, liquidity premium, asset allocation

Suggested Citation

Schlumpf, Felix and Martínez Gutiérrez, Catalina, Strategic Allocation to Less Liquid Assets (November 28, 2014). I-VW-HSG Trendmonitor 4-2014 , Available at SSRN: https://ssrn.com/abstract=2531750

Felix Schlumpf

Zurich Insurance Company Ltd ( email )

Mythenquai 2
Zurich, CH-8022
Switzerland

HOME PAGE: http://www.zurich.com

Catalina Martínez Gutiérrez (Contact Author)

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, Geneva 1211
Switzerland

HOME PAGE: http://gfri.ch

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