Liquidity Adjusted Value at Risk: Integrating the Uncertainty in Depth and Tightness
| Autor: | Levent C. Uslu, Burak Evren |
|---|---|
| Rok vydání: | 2017 |
| Předmět: |
Cost of Liquidity
050208 finance Actuarial science 05 social sciences VNET 04 agricultural and veterinary sciences lcsh:Business Market liquidity Market risk 0502 economics and business 040103 agronomy & agriculture Econometrics Economics 0401 agriculture forestry and fisheries Portfolio Parametric methods EWMA chart Volatility (finance) Depth Uncertainty lcsh:HF5001-6182 Liquidity Adjusted Value at Risk Value at risk Parametric statistics |
| Zdroj: | Eurasian Journal of Business and Management, Vol 5, Iss 1, Pp 55-69 (2017) |
| ISSN: | 2148-0206 |
| DOI: | 10.15604/ejbm.2017.05.01.006 |
| Popis: | Efficient market risk management should also focus on the market liquidity risk, which is generally ignored by the conventional Value at Risk Metrics. We propose two alternative parametric methods to existing studies for the estimation of Liquidity Adjusted Value at Risk (LVaR). The first model is based on the volatility dynamics of VNET (Engle and Lange, 2001) whereas the second model also incorporates the first two moments of the tightness dimension to the latter, as measured by relative weighted bid-ask spreads. Considering a portfolio with different underlying volatility assumptions (EWMA, GARCH-CCC, GARCH-DCC), validation results indicate that both parametric LVaR approaches are strong alternatives to tightness based LVaR models and strictly superior to conventional VaR models, with respect to performance related to regulatory compliance, statistical coverage and overall relative cost of liquidity vs. loss size on violation days. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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