Liquidity Risk - Relevance to Actuaries [35]

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Bullet points include: Policyholder should (generally) prefer B to A. PD largely driven by non-liquidity risks, so roughly the same for both firms. LGD driven by what happens in the event of default. Default will most probably be associated with forced liquidation of assets (and forced transfer of liabilities). Which asset type is likely to realise more in a fire sale – a liquid one or an illiquid one? Possibly mitigating effects over longer time horizons

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