Measuring Liquidity Risk

• Main Authors: Yu-chen Huang, 黃于珍
• Other Authors: Da-bai Shen
• Format: Others
• Language: zh-TW
• Published: 2002
• Online Access: http://ndltd.ncl.edu.tw/handle/38224446990171041380

碩士 === 中國文化大學 === 會計研究所 === 90 === In a much more complicated and volatile financial market, the issue of risk management becomes increasingly important. Whether a financial institution can continue its operation is highly related to its quality of risk control. Value at Risk as and emerging tool of risk management. Value at risk (VaR) provides risk managers feasibility to estimate the maximum loss of investment portfolios through computa-tion of certain numbers. However, conventional value at risk models lack a treatment of liquidity risk. Neglecting liquidity risk leads to an underestimation of overall risk and misapplica-tion of capital for the safety of financial institutions. Standard value at risk model as-sumes that any quantity of securities can be traded without influencing market prices. In reality, most markets are less than perfectly liquid. Recent financial turbulences, as the collapse of long-term capital management , prove that liquidity is a significant risk for market players. The main aim of this article is to demonstrate the importance of the liquidity risk component in financial markets. First, we make a survey of literature explaining how the liquidity risk can be incorporated into one single measure of market risk. Then, apply the liquidity adjusted value at risk model provided by Bangia, Diebold, Schuermann, and Stroughair (1999), and include the liquidity risk would that the overall risk be accurate.