and its value at the end of the period. When the method is extended for corporate debt it is shown that liquidity risk increases with a bond credit risk. Measures of liquidity risk Liquidity gap Culp defines the liquidity gap as the net liquid assets of a firm. The excess value of the firm's liquid assets over its volatile liabilities. A company with a negative liquidity gap should focus on their cash balances and possible unexpected changes in their values. As a static measure of liquidity risk it gives no indication of how the gap would change with an increase in the firm's marginal funding cost. Elasticity Culp denotes the change of net of assets over funded liabilities that occurs when the liquidity premium on the bank's marginal funding cost rises by a small amount as the liquidity risk elasticity. For banks this would be measured as a spread over libor, for nonfinancials the LRE would be measured as a spread over commercial paper rates. Problems with the use of liquidity risk elasticity are that it assumes parallel changes in funding spread across all maturities and that it is only accurate for small changes in funding spreads. Measures of asset liquidity Bid–ask spread The bid–ask spread is used by market participants as an asset liquidity measure. To compare different products the ratio of the spread to the product's bid price can be used. The smaller the ratio the more liquid the asset is. This spread is composed of operational, administrative, and processing costs as well as the compensation required for the possibility of trading with a more informed trader. Market depth Hachmeister refers to market depth as the amount of an asset that can be bought and sold at various bid–ask spreads. Slippage is related to the concept of market depth. Knight and Satchell mention a flow trader needs to consider the effect of executing a large order on the market and to adjust the bid–ask spread accordingly. They calculate the liquidity cost as the difference of the execution price and the initial execution price. Immediacy Immediacy refers to the time needed to successfully trade a certain amount of an asset at a prescribed cost. Resilience Hachmeister identifies the fourth dimension of liquidity as the speed with which prices return to former levels after a large transaction. Unlike the other measures, resilience can only be determined over a period of