Liquidity Risk with Coherent Risk Measures

Hyejin Ku

Applied Mathematical Finance, 2006, vol. 13, issue 2, 131-141

Abstract: This paper concerns questions related to the regulation of liquidity risk, and proposes a definition of an acceptable portfolio. Because the concern is with risk management, the paper considers processes under the physical (rather than the martingale) measure. Basically, a portfolio is 'acceptable' provided there is a trading strategy (satisfying some limitations on market liquidity) which, at some fixed date in the future, produces a cash-only position, (possibly) having positive future cash flows, which is required to satisfy a 'convex risk measure constraint'.

Keywords: Coherent risk measures; liquidity risk; acceptable portfolio (search for similar items in EconPapers)
Date: 2006
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DOI: 10.1080/13504860600563143

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