Title
The LIX : a model-independent liquidity index The LIX : a model-independent liquidity index
Author
Faculty/Department
Faculty of Sciences. Mathematics and Computer Science
Publication type
article
Publication
Amsterdam ,
Subject
Economics
Mathematics
Source (journal)
Journal of banking and finance. - Amsterdam
Volume/pages
58(2015) , p. 214-231
ISSN
0378-4266
ISI
000360510300015
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
Abstract
This paper provides a new model-free indicator of liquidity, the so-called LIX index. The computation of the LIX index combines the conic finance theory, which recognizes the two- price economy and is built upon the concept of indices of acceptability of Cherny & Madan (2010), with the option payoff spanning formula of Breeden & Litzenberger (1978). Matching the conic finance bid and ask prices of the stock with those observed in the market allows us to derive a model-free and unit-less indicator of spot liquidity. Just as the VIX and the SKEW index quantify the volatility and the tail risk perceived by todays investors, the resulting LIX index measures, in a similar market-implied fashion, the liquidity risk. The maximum likelihood estimation of popular mean-reverting processes applied to model-free liquidity time series indicates that spot liquidity tends to dry up during distress periods whereas a global drying-up of liquidity could not be detected during turmoil periods in the option market.
Full text (open access)
https://repository.uantwerpen.be/docman/irua/5f9feb/4fed2b4a.pdf
E-info
https://repository.uantwerpen.be/docman/iruaauth/875efd/97f10233.pdf
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