Liquidity vs Liquidity Premium

slocksonslockson
in CIA.IFRS17

Hi Graham. Based on my understanding of the reading, the terms "Liquidity" and "Liquidity Premium" are negatively correlated. For example, a government bond has high liquidity but low liquidity premium. And an insurance contract with low liquidity would have HIGH liquidity premiums.

I believe that in the Wiki (IFRS 17 DR) for contract features that affect the liquidity premium:

  • Exit costs should DECREASE Liquidity but INCREASE Liquidity Premium.
  • No Inherent value should INCREASE Liquidity but DECREASE Liquidity Premium.
  • Exit value INCREASE liquidity but DECREASE Liquidity Premium.

Let me know what you think.

Thank you

Comments

  • grahamgraham

    Yes, that's an excellent point. I have corrected that section in wiki. I've also added that information to the introductory section in the wiki article and have inserted some extra text to a few BattleCards as well. This relationship between liquidity and liquidity premium seems important. Thx!

  • flipcatflipcat

    Hi Graham, for the Battle card
    is the liquidity of a government bond high or low?
    shouldn't liquidity be High and the liquidity premium is low?

  • grahamgraham

    Yes, those BattleCard answers were reversed. Thx.

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