By Christian Schmaltz

Internal liquidity versions for banks have won massive value given that German regulators have determined to simply accept them for regulatory reporting. Christian Schmaltz identifies product funds flows, investment unfold, investment ability, haircuts, and non permanent rates of interest as key liquidity variables. Then, he assumes particular stochastic techniques for the most important variables resulting in a specific liquidity version. The modelling concentration lies at the product money circulation that's defined via a jump-diffusion strategy. ultimately, the writer applies the version to the allocation, inner pricing, and optimization of liquidity.

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10 Haircuts can take any values between 0 and 1. Similar to delta haircuts are illiquidity measures as they take large values for less liquid and zero for perfectly liquid assets. Haircuts measure illiquidity in currency units, delta measures illiquidity as discount premium. Both measures are positive. Delta is not limited, whereas haircuts are limited at 1. Haircuts can be reconciled with bid-ask spreads that are often used as empirical proxies to measure market liquidity in a trading context.

3 Complete Liquidity Models In contrast to the literature, we develop a complete liquidity model. Completeness refers to several dimensions: 1. Model covers both short and long-term liquidity If the cash and debt management models of the previous section are adjusted for bank particularities, they remain partial models. However, they have a common point: cash flows. Cash management models manage short-term, debt management models longterm cash flows. An integrated model to describe short and long-term cash flows is desirable.

2005]. 4). The left hand side contains the sources to cover them. Payment obligations are covered in a natural way by (1) incoming cash flows CFt+ . If incoming cash flows are not sufficient, additional liquidity actions have to be taken. These actions are (2) asset liquidation LCt and (3) unsecured external funding FCt . LCt stands for liquidation capacity. It is the sum of the liquidation values16 of assets that have not been taken into account by CFt+ . 17 FCt stands for funding capacity. The sum of liquidation and funding capacity is termed Counterbalancing Capacity.

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