Managing Illiquid Assets: Perspectives and Challenges - Risk Books
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Managing Illiquid Assets: Perspectives and Challenges

Edited By Savita Verma, Vijay Krishnaswamy, Eric Takigawa and Michael Schouten


Illiquid assets constitute a challenging asset class with regards to their valuations and ongoing management. The significant and explicit emphasis put on the management and control of liquidity under the new and evolving regulatory regimes such as Basel III is a further testimony of this challenge.

In Managing Illiquid Assets: Perspectives and Challenges the perspectives of experts and practitioners are brought together on managing these high-risk, and frequently complex, financial assets.

Publish date: 28 Aug 2012

Availability: In stock

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Managing Illiquid Assets: Perspectives and Challenges

Book description

Valuation and management of illiquid assets is an ongoing concern within financial institutions, even during so-called ‘normal’ low volatility market conditions. When markets are volatile, going through a liquidity squeeze, or during a full blown credit crisis, the concern can quickly morph into a full time preoccupation.

In this new book, the authors cover several aspects of valuation and the on-going management of illiquid assets that contribute to this preoccupation, including:

•    Perspectives and challenges of liquidity risk management;
•    External methods and approaches available in the literature for valuing illiquid assets;
•    Liquidity issues relating to the US mortgage debt market;
•    Principal regulatory responses to the financial crisis on liquidity risk management;
•    Key themes relating to liquidity risk in the Basel III regime;
•    A new mathematical model for incorporating a liquidity value adjustment for over the counter contracts;
•    Risk management best practices; and
•    The limitations of existing risk management systems with a view to the future of risk management.

By bringing together the perspective of experts and practitioners on managing these high-risk, and frequently complex, financial assets, all of the key issues related to illiquid asset valuation are explored.

Book details

Book 9781906348410 / eBook 9781908823915
Publish date
28 Aug 2012
155mm x 235mm

Editor biography

Savita Verma, Vijay Krishnaswamy, Eric Takigawa and Michael Schouten

Savita Verma is a financial risk management professional with expertise in market and credit risk. Her work experience covers risk management in the banking industry, in the financial risk management systems design and delivery industry, as a finance academic, and in marketing research. With more than 24 years of experience, Savita has held roles covering economic capital methodologies, credit and risk analytics, financial engineering, and academic and applied research in a number of countries. RBC Capital Markets, Algorithmics, Misys, Scotiabank and at the Schulich School of Business at York University, Toronto are among the institutions she has worked at. She has authored and co-authored articles and books on finance. Savita has a Ph.D. in Business Administration (Finance) from the University of British Columbia, Canada, and a Ph.D. in Mathematics from the Indian Institute of Technology in Kanpur, India. She is currently Manager, Quantitative Modeling Team of the Risk Architecture Department and a member of the Analytics & Risk Technology (ART) Project Team - at the UK Financial Services Authority (UK FSA).

Vijay Krishnaswamy is a Partner and Heads the Enterprise Risk Management of Hymans Robertson, a boutique consulting firm in the UK. He has over 14 years of experience. He is a seasoned risk and capital professional with a unique international background spanning banking, consulting and regulation. He is also a regular speaker at industry conferences. His previous roles included working for the Financial Services Authority (FSA) overseeing a number of programmes to implement best practice in the regulator’s own bank-wide stress testing models as well as reviewing ICAAPs and stress tests of UK banks. He also set up and co-chaired the FSA’s internal model governance committee. In his consulting career including with KPMG, he worked with a range of financial institutions across the world on diverse topics in financial risk and capital, including model development and validation, reverse stress testing, capital management, planning and budgeting, and supporting regulatory applications. Prior to that, his industry experience spans a variety of roles in the front office, credit analysis, risk analytics and project management with Standard Chartered Bank and ANZ Banking Group. He holds a bachelor’s degree in mathematics and an MBA in Finance from the Indian Institute of Management Ahmedabad.


Eric Takigawa is a Managing Director at Markit, a leading supplier of specialty financial information services and products to the global business community.  He is part of the Markit Analytics team in Asia, a risk management software solution provider focused on the financial capital markets. Prior to Markit, he was the managing director for another risk management software solution boutique firm covering Asia Pacific and grew the business as the financial institutions in the region developed risk management capabilities since the Asian crisis of 1997-1998. Prior to a career in the financial capital markets industry he developed large scale Monte Carlo simulation models for military applications including surveillance, communications and other defensive systems based on several years of support of military operations in the field applying operations research theory to real-world situations. Prior to that, he provided analysis of inertial guidance systems through estimation of error coefficients with empirical results. He holds a bachelor’s degree in mathematics and a Ph.D. in Applied Mathematics from Brown University.

Michael Schouten is a Senior Risk Consultant at Hymans Robertson, a UK-based risk management consultancy for pension funds, insurers, banks and asset managers.    He has 11 years of experience developing state-of-the-art quantitative models within the financial services sector, most of which focus on complex legal and regulatory issues.  He has recently presented at conferences covering a range of issues relating to the new regulatory requirements in stress testing and reverse stress testing Michael also develops valuation models for exotic derivatives and illiquid asset classes that are used in Hymans Robertson proprietary Economic Scenario Generator (ESG). Michael holds a PhD in Bioinformatics from the University of Edinburgh, where he published research in the area of genetic mapping for complex disease. He has since used his research methodology to develop more robust models to measure Operational Risk. He also has an MSc in Economics from the London School of Economics and BA in Economics-Mathematics from Columbia University. Michael has also qualified for the Professional Risk Manager (PRM) designation from PRMIA and is a member of the PRMIA steering committee in Edinburgh.

Table of contents

I.    Illiquid assets – an overview
Savita Verma and Michael Schouten

II.    A brief history of valuation
Tanveer Bhatti

III.    Case Study: Funding and liquidity considerations in the US residential mortgage market
Stefania Perrucci

IV.    Foundations of liquidity risk management
Kuntal Sur and Kaustav Bhattacharjee

V.    Valuation of illiquid assets: third party sources
Ian Blance

VI.    A model for estimating the liquidity valuation adjustment on OTC derivatives
Umberto Cherubini and Sabrina Mulinacci

VII.    Global valuation and dynamic risk management
Claudio Albanese, Guillaume Gimonet and Steve White

VIII.    A Regulatory Perspective on Prudent Valuation and Best Practice in Product Control
Ragveer Brar

IX.    Beyond valuation: Basel III and its impact on illiquid assets
Michael Schouten, Vijay Krishnaswamy and Garry Smith

X.    Model risk… or the risk of using models
Vijay Krishnaswamy and Danny Dieleman

XI.    Stress testing in financial institutions
Sunil Verma

XII.    Case Study: Risk governance and management practice of Hana Financial Group
Joon-Hui Yoon, Eun-Sok Kim and Ki-Sik Min

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