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Integration des Marktliquiditätsrisikos in das Risikoanalysekonzept des Value at Risk

Florian Völker, Heinz Cremers and Christof Panzer

No 198, Frankfurt School - Working Paper Series from Frankfurt School of Finance and Management

Abstract: Most traditional Value at Risk models neglect market liquidity risk and hence only consider the market price risk (i.e. risk associated with holding a certain position). In order to fully capture the market risk associated to holding and trading a position, we first define market liquidity risk, its dimensions (tightness, depth, resiliency, immediacy) and causes (exogenous / endogenous). We then present and evaluate different liquidity-adjusted Value at Risk models which capture one or more dimensions of market liquidity risk and thereby present a more true view on the overall market risk. This paper also spotlights how Basel III regulation defines liquid assets, derived from the Liquidity Coverage Ratio (LCR) framework, and evaluates if this regulation adequately reflects market liquidity risk. We conclude that the LCR concept is flawed as the defined buckets of liquid assets do not reflect the true liquidity of certain assets. Furthermore it can be said that the defined buckets might result in heightened systematic risk as banks will focus on certain asset classes. Additionally the corporate fixed income sector might experience a crowding out as these assets will appear less rewarding to banks.

Keywords: Market Risk; Market Liquidity Risk; Market Microstructure; Liquidity-adjusted Value-at-Risk; Basel III; Liquidity Coverage Ratio; Liquid Assets (search for similar items in EconPapers)
JEL-codes: C1 C14 C16 D4 G1 G32 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-ban, nep-mst, nep-ore and nep-rmg
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