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Liquidity Black Holes
Exist when a mkt price disruption impact investor behavior in a such way as to cause even further decline in the price of these assets
Reins as a form of capital
Insr typically rely on reins as a substitute for holding capital
Liquidity Model Needs
- Important to include specific stress scenarios, and account for dynamic responses to:
- 1. possiblity and consequence of other mkt participants simultaneously following the same strategies
- 2. possibility of liquid assets becoming illiquid
- 3. possibility that off-balance sheet commitments might be triggered
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