On the appraisal of LVaR throughout the close-out period: an investment management outlook from recent global financial crisis

Mazin A.M. Al Janabi

International Journal of Management Practice, 2013, vol. 6, issue 3, 248-285

Abstract: In this paper, we launch a practical modus-operandi for the assessment of potential market risk exposures for financial trading portfolios by providing an investment management perspective from recent global financial crisis. This proposed tactic is based on the renowned concept of Liquidity-Adjusted Value-at-Risk (LVaR) along with the innovation of a risk-engine algorithm that can estimate LVaR for both long and short-sales positions. Our wide-ranging risk model can conduct LVaR analysis under normal and severe market conditions besides it takes into account the effects of illiquidity of equity securities, under crisis-driven circumstances, throughout the close-out period. In order to clarify the accurate use of LVaR and stress-testing methods, real-world simulation scenarios of trading risk management are presented for the Gulf Cooperation Council (GCC) financial markets. The developed methodology and risk assessment algorithms can aid in advancing risk management practices in emerging markets and particularly in the wake of recent credit crunch.

Keywords: emerging markets; financial engineering; financial risk management; GARCH; GCC financial markets; investment management; LVaR; liquidity-adjusted value-at-risk portfolio management; stress testing; risk exposure; simulation; Gulf Cooperation Council; credit crunch. (search for similar items in EconPapers)
Date: 2013
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