Risk Asset Management

Literature Review

The asset market liquidity risk became a perplexed subject and term in the market of liquidity and risk. The measurement of the risks underlies in different definition in the academic literature as well as in professional contexts. There are vast of case studies that attempts to find answer in the risk assessment and risk management. Usually, management are focused more on the basic material industries and optimizing the yield on managing the cycle of the business. To do such intervention, there is a need in a development in the management of the team that possesses the new skills, such as managing the risks which share the expectations in the growth, return, and continuous cashflow.

The challenge that the management is currently facing can be only overcome if there is a present inter-functional teams that are mainly trained in handling the business problems. In a holistic view, an approach to the capital management requires the values in the optimization, risk management, and growth (Carvalho, et al., 1996).

Most of the studies are focused on the theoretical aspects of asset liquidity and approaches in the market liquidity risk for individual trading and securities. Therefore, it was emphasized to have thoughts on the asset market/liquidity risk management. The review on the literature generalized the theoretical modeling underpinning and handles the same perspective in market and liquidity risks and how the two integrate in the domain of the business. The components of the risk management are correlated in most cases and having the components. First component is the attribute to impact in the adverse in price movement. Meanwhile, the second characteristic is focused on the risk of variation in terms of transaction costs that may arise from the bidding, merging, and acquisitions.

There are two suggested models that should be applied in the asset market/ liquidity risks. First is the re-engineered and robust liquidity model that can produce realistic asset market liquidity losses during the unwinding period of the business. The main concept of the model is to adjust the liquidity and valuing the risks particularly in trading positions. The second model is related to the transactions cost of liquidation due to bid-ask and includes the improved technique that tackles the issue of bid-ask spread volatility. Both models comprise the new approach in the impact of the time-varying volatility and the contribution on the overall asset market/liquidity risk.

There are various techniques being applied and adapted by the management in the asset market/ liquidity risks and the effectiveness of the techniques depend on the amount of implementation, timing, and the weight of the risk. Most important part of the technique is handling, assessing and managing the kind of risk present in the organization. As a result, there is an increase tradability of assets in emerging markets and re-examination of the current market and liquidity risk management techniques. It can also help the balance of the position and focus of the business (Janabi, 2009).

There is also a need for commitment in managing the risk and preparing for the impact of it. It is hard for the individuals outside the organization to measure the applied management and assessing the market growth. There is more to see in the acquisitions of trust and asset management field as well as its credibility. Previous studies reveal the analysis to cover the life insurance of the companies; big brokers or dealers who sell annuities for years are paid for the most of asset management products. And insurance products are expensive but the security is still hard to measure (Streeter, 2008).

The great advantage of an organization that has the right person on risk management is to gather the ability to speed up the risk management process. The ability to process faster allows the more in-depth analysis and strategic planning and at the same time avoiding the drastic actions. Identifying all the probably risk enables the company to process and accommodate the risks than the traditional way. Therefore, there is a major difference and be very beneficial to the situation facing the organization in a more detailed way (ARM, 2007). In addition, the organization can save the number of workforce and the costs that might set on the record. Managing the risk with a few people is certainly advantageous and the organization can act in the small group because it is easier to handle. Only, they have to gather the right people to accommodate their needs.

References:

ARM, 2007. Strategic Though Group Risk Management Case Study. Active Risk Management. [Online] Available at: http://www.strategicthought.com/Assets/Downloadablefile/Essent-ARM-Case-Study-EU-21Jun07-15332.pdf. [Accessed 22 Jan 2010].

Carvalho, E., Gurlit, W., Mareels, S., Stein, E., & Rudmann, S., 1996. Current Research: Asset Management in Basic Materials. The McKinsey Quarterly, No. 2

Janabi, M., 2009. Asset Market Liquidity Risk Management: A Generalized Theoretical Modeling Approach for Trading and Fund Management Portfolios. [Online] Available at: http://mpra.ub.uni-muenchen.de/19498/1/Liquidity_Risk_Management-QMF_2009.pdf. [Accessed 22 Jan 2010].

Streeter, B., 2008. Do Fee-Based Services Have an Edge? Two Analysts Give Views on What Created value in the World of Trust and Asset Management. ABA Banking Journal, Vol. 100, No. 6.