LiquidStress 💧

Monte Carlo simulation for emergency fund optimization. Models bucket-strategy portfolios with cascading liquidity tiers under stochastic unforeseen expenses. Stress-tests cash reserves, emergency funds, and asset allocation to minimize costly liquidations during financial emergencies. Built in Julia.

🚀 Try the Interactive Demo

🎯 Why LiquidStress?

The traditional "3-6 months of expenses" emergency fund rule is oversimplified. LiquidStress goes beyond this by:

• 📊 Modeling realistic emergencies with stochastic distributions (frequency + magnitude)
• 🏗️ Testing bucket strategies that cascade from liquid to illiquid assets
• 📈 Optimizing liquidity to balance emergency preparedness with investment returns
• 🎲 Monte Carlo simulation to stress-test your strategy across thousands of scenarios

🪣 Portfolio Architecture

LiquidStress uses a bucket/cascade design with prioritized liquidity tiers:

[Liquid] → [Semi-Liquid] → [Illiquid] → [Long-term] Cash Savings Bonds Stocks/ETFs

Deposit Logic: Money flows to the next bucket only after the previous one reaches its minimum reserve.

Withdrawal Logic: Money is withdrawn from the most liquid bucket first, cascading deeper only when necessary.

Bucket Types:

• SinkBucket: Unlimited capacity (e.g., stocks)
• BoundedBucket: Fixed capacity with min/max limits
• TransactionBucket: Minimum transaction amounts (e.g., bonds)

🎯 The Simulation

Input Parameters:

• Monthly salary and fixed expenses
• Emergency event distributions (Poisson frequency + Gamma magnitude)
• Portfolio configuration (bucket sizes, reserves, constraints)
• Simulation parameters (trajectories, time horizon)

Simulation Process:

1. Monthly cycle: Deposit salary → Withdraw expenses + emergencies
2. Emergency modeling: Compound Poisson process for realistic event clustering
3. Portfolio tracking: Record which buckets are accessed each month
4. Statistical analysis: Extract breach frequencies, risk metrics, optimization insights

📊 Key Outputs

• Bucket access frequencies: How often do you need each liquidity tier?
• Balance trajectories: Mean evolution and confidence intervals
• Risk metrics: Worst-case scenarios and tail risk analysis
• Optimization insights: Right-size your emergency funds

📚 Usage

Check the Pluto notebook for detailed usage and methodology.