Risk

Price Resilience Analysis

In addition to analyzing the immediate price impact of a swap, the risk framework also needs to analyze the resilience of an asset price post-swap, e.g. after a large swap or a series of large swaps.

K-Lend uses multiple approaches to assess this resilience over time, including:

  • Analyzing the cumulative price impact of multiple large trades

  • Measuring how quickly the liquidity in limit order books (Openbook, Phoenix etc.) replenishes after large trades (since LOBs are typically much more reactive than AMM LP pools)

  • Calculating the rate at which the price recovers after a large trade (which indicates the market's ability to absorb shocks

  • Examining the relationship between trade size and price impact

The asset risk framework also employs models inspired by the vast literature on optimal execution and market impact modeling, such as the seminal paper by Almgren-Chriss**, to inform its risk analysis.

** Almgren, R., & Chriss, N. (2000). Optimal Execution of Portfolio Transactions. The Journal of Risk, 3(2), 5-39.

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