Liquidity Adjusted Intraday Value at Risk
نویسنده
چکیده
The traditional Value at Risk (VaR) is a very popular tool measuring market risk, but it does not incorporate liquidity risk. This paper proposes an extended VaR model to integrate liquidity risk for intraday trading strategies using high frequency order book data. We estimate the one step ahead liquidity adjusted intraday VaR called(LAIVaR) for both bid and ask positions, considering several threshold trading sizes. We also quantify the liquidity risk premium by comparing our result with the standard VaR approach.
منابع مشابه
Estimating the intraday liquidity risk of financial institutions: a Monte Carlo simulation approach
The recent financial crisis has shown that liquidity risk is far more important and intricate than regulators had previously acknowledged. The shift from bankbased to market-based financial systems and from deferred net settlement systems to liquidity-demanding real-time gross settlement of payments explains some of the shortcomings of traditional liquidity risk management. Although liquidity r...
متن کاملRisk and Concentration in Payment and Securities Settlement Systems
Large value payment and securities settlement systems are important components of an economy's nancial system. Many such systems are operated by central banks and are liquidity intensive. Central banks often provide inexpensive liquidity to facilitate settlement. This leads to a number of policy questions about the provision of such liquidity. To answer these questions, central banks need to un...
متن کاملIntraday Liquidity in Gross Payment Systems
The purpose of this paper is to make a comparative analysis of modern gross payment systems, emphasizing on the implications of the availability of intraday liquidity and the different mechanisms used to provide this liquidity. The possibility of default and the risk of the intraday credit are first introduced to determine the implications of its existence on banks’ behaviour and on the probabi...
متن کاملIntraday Liquidity Demand of Banks in Real-Time Gross Settlement System
In this study a simulation analysis is applied to address the change in banks liquidity demand due to a shift in settlement method brought about by adopting Real Time Gross Settlement System. At the first stage of this research, we use a data generator model along with some information on the time distribution of coded cheques over a working day in order to produce intraday flow of payment...
متن کاملDesigning large value payment systems: An agent-based approach
The purpose of this paper is to show how agent-based simulations of payment systems can be used to aid central bankers and payment system operators in thinking about the appropriate design of payment settlement systems to minimise risk and increase their efficiency. Banks, which we model as the ‘agents’, are capable of a degree of autonomy with which to respond to payment system rules and adopt...
متن کامل