Liquidity on the outside from the inside

Joseph Simonian

Applied Economics Letters, 2011, vol. 18, issue 16, 1591-1593

Abstract: We describe an extension to a Liquidity-Adjusted Value-at-Risk (LVaR) model originally developed by Bangia et al. (1999) that incorporates liquidity risk into the traditional VaR model using random bid-ask spreads. By applying the Hellinger distance measure, we show how the bid-ask spread can be partially endogenized by adjusting it to reflect the influence of trade size on prices and ultimately on the measurement of market risk.

Keywords: VaR; liquidity; bid-ask spread (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:taf:apeclt:v:18:y:2011:i:16:p:1591-1593

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DOI: 10.1080/13504851.2011.554362

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