Mark to Market and liquidity Risk

Liquidity risk is basically a financial risk due to uncertain liquidity in the market for your asset. For example, buying a house is an illiquid asset (you can just sell it over the market in couple of hours or even a few days). Also, if your asset is illiquid, then more chances of the holder of an asset selling that asset for less than its value.
 
As far as mark to market, I read about that once in Derivatives session. Not sure which concept your applying this to.
 
I understand very well the concept of liquidity. But I don't know how Mark to Market came to the scene in the concept of liquidity risk.
 
Never read anything about them together.

(pardon me, I thought you were asking about them independently)
 
Marking to market - Recording the price or value of a security / portfolio /position to reflect its current market value rather than its book value. Frequent marking to market should increase an asset / security's liquidity (since one does not have to get into valuation if one wants to sell the asset)
 
CFA_2k6, you got it. But how is it done? Who does the marking? Is it derived from the financial models, published in the financial newspaper or maintained by an independent body?
 
Indeed, who does the marking....

Suppose you run a hedge fund trading highly illiquid securities (e.g., defaulted lease obligations in bankruptcy court) but provide monthly liquidity. You are absolutely marking to market by allowing redemptions at NAV and guess who does the marking.
 
Marking to Market is using market data to price securities in portoflio. Market data can be "cooked" if there is no appropriate data can be found.
 
marking to market basically posting the dialy close of the underlying security. Since day to day market volatility occurs margins might need to be posted etc. eg. When the Hunt brother cornered the silver market in the early 80's the price of silver went to 50. a silver company that was producing could have sold their silver production @15 or 20 think they are going to lock in huge profits.. ALL IS GOOD.. then silver goes to 25 30 35. the silver company has to post margin because of marking to market on the silver. and the silver company goes broke with extreme price increases in silver..
 
Marking to marking: setting the derivative (or any asset but mostly used to discribe futures) value to Zero, that is if you have any gain you take it or any lose you pay it, so if you want to sell your position then its value is Zero. In case of Assets, which mostly balance sheet long term assets, you update or revalue the asset to the fair market value.

Liquidity risk: basically the asset not liquid , meaning its fair value (market value) is hard to get. Or the time needed to sell it takes long time, again due to the uncertainity of the price. usually this risk priced by having a discount on it (you can think of it as a premium yeild for the risk of not being able to liquidiate it fast, due to the uncertainity about the equilibrium point between the supply and demand). Like the house maybe they are large in volume, but with in the same area same characteristic of the house, they are small in trading volume.

This is my understanding of these too concept. I hope I covered every aspect and names used to describe each
 
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