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    Return Mathematics: Liquid vs Illiquid Investing

    20 min
    |
    6 sources
    |
    Nov 25, 2025
    FinanceBusinessScience

    Deep dive into the sophisticated mathematical frameworks transforming portfolio theory, from GARCH models to liquidity premiums, revealing how quantitative methods optimize returns across liquid and illiquid investment strategies.

    Return Mathematics: Liquid vs Illiquid Investing

    This audio lesson was created by a BeFreed community member

    Input question

    return and rate mathematics in the quantitative foundations of investing in liquid and illiquid strategies

    Host voices
    Niaplay
    Eliplay
    Knowledge sources
    Asset Allocation
    Strategic Risk Management
    Strategic Asset Allocation with Illiquid Alternatives - arXiv
    link
    https://arxiv.org/pdf/2207.07767
    Systematic Trading
    Liquidity Premium, Liquidity-Adjusted Return and Volatility, and a Unified Modern Portfolio Theory: illustrated with Crypto Assets
    link
    https://export.arxiv.org/pdf/2306.15807v3.pdf
    The Wrapper Matters: Comparing Liquid Alternatives and Hedge Funds
    link
    https://caia.org/sites/default/files/thewrapper.pdf

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    "I never knew where to start with nonfiction—BeFreed’s book lists turned into podcasts gave me a clear path."

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    "Perfect balance between learning and entertainment. Finished ‘Thinking, Fast and Slow’ on my commute this week."

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    "Crazy how much I learned while walking the dog. BeFreed = small habits → big gains."

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    "Reading used to feel like a chore. Now it’s just part of my lifestyle."

    @Erin, Investment Banking Associate , NYC
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    "Feels effortless compared to reading. I’ve finished 6 books this month already."

    @djmikemoore
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    @Leo, Law Student, UPenn
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    Key Takeaways

    1

    Opening and Setting the Stage

    0:00

    **Nia:** Hey everyone, welcome back to another personalized deep dive from BeFreed! I'm Nia, and I'm absolutely buzzing about today's topic because we're diving into something that's honestly been keeping me up at night-the mathematics behind returns and rates in quantitative investing, especially when it comes to liquid versus illiquid strategies.

    0:21

    **Eli:** And I'm Eli! Oh my goodness, Nia, you're speaking my language here. I've been absolutely fascinated by how the math changes everything when you're dealing with different types of investment vehicles. It's like-you know when you think you understand something, and then you realize there are these whole layers underneath that completely transform how you should be thinking about it?

    0:40

    **Nia:** Exactly! And what's wild is that most investors-even sophisticated ones-are making decisions based on incomplete mathematical frameworks. They're using traditional mean-variance optimization without really understanding how liquidity premiums and illiquidity dynamics fundamentally alter the risk-return equations.

    2

    Foundational Mathematics of Asset Allocation

    3

    The Illiquidity Premium and Mathematical Modeling

    4

    Systematic Trading and Risk Management Mathematics

    5

    Liquidity-Adjusted Portfolio Theory Mathematics

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