The Most Reliable Approach To Measure Value At Risk Adjusted For Market Liquidity
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The Most Reliable Approach To Measure Value At Risk Adjusted For Market Liquidity
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Author : Cornelia Ernst
language : en
Publisher: GRIN Verlag
Release Date : 2010-08
The Most Reliable Approach To Measure Value At Risk Adjusted For Market Liquidity written by Cornelia Ernst and has been published by GRIN Verlag this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-08 with categories.
Master's Thesis from the year 2009 in the subject Business economics - Investment and Finance, grade: 1.0, Technical University of Munich (Department of Financial Management and Capital Markets), language: English, abstract: The last months of the financial market crisis and in particular the bankruptcy of the renowned investment bank Lehman Brothers, have taught us all that a financial institution, failing to identify and address its risks appropriately, may rapidly face problems it is not able to handle on its own. Avoiding such problems requires a rigorous risk management not only in bad times but also in times where business is going and growing well. Today, the most popular tool to measure, control and manage financial risk within corporations and financial institutions is the Value at Risk (VaR) concept. However, since the computation of the traditional Value at Risk relies solely on market prices, one often criticized downside is its disregard of market liquidity risk, which is defined as the potential loss resulting from the time-varying cost of trading. Due to the neglect of liquidity risk, the calculated VaR measures are suspected to be generally underestimated. This thesis aims at finding a method for calculating liquidity adjusted Value at Risk (lVaR) that is most accurate and at the same time implementable in practice. The first objective is to provide a comprehensive overview on existing liquidity adjusted risk measures, assess them critically and evaluate their practicability. Second, I propose a new method to measure liquidity adjusted Value at Risk that accounts for non-normality in price and liquidity cost data using a technique called Cornish-Fisher expansion. In a third step I conduct extensive backtests of all lVaR approaches that proved to be implementable in a large stock data set of daily data. After comparing the accuracy of the backtested models in detail, recommendations for practical applications are given. I find only a very small fracti
Measuring Systemic Risk Adjusted Liquidity Srl
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Author : Andreas Jobst
language : en
Publisher: International Monetary Fund
Release Date : 2012-08-01
Measuring Systemic Risk Adjusted Liquidity Srl written by Andreas Jobst and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-08-01 with Business & Economics categories.
Little progress has been made so far in addressing—in a comprehensive way—the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines option pricing with market information and balance sheet data to generate a probabilistic measure of the frequency and severity of multiple entities experiencing a joint liquidity event. It links a firm’s maturity mismatch between assets and liabilities impacting the stability of its funding with those characteristics of other firms, subject to individual changes in risk profiles and common changes in market conditions. This approach can then be used (i) to quantify an individual institution’s time-varying contribution to system-wide liquidity shortfalls and (ii) to price liquidity risk within a macroprudential framework that, if used to motivate a capital charge or insurance premia, provides incentives for liquidity managers to internalize the systemic risk of their decisions. The model can also accommodate a stress testing approach for institution-specific and/or general funding shocks that generate estimates of systemic liquidity risk (and associated charges) under adverse scenarios.
The Fundamentals Of Risk Measurement
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Author : Christopher Marrison
language : en
Publisher: McGraw Hill Professional
Release Date : 2002-07-18
The Fundamentals Of Risk Measurement written by Christopher Marrison and has been published by McGraw Hill Professional this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002-07-18 with Business & Economics categories.
A step-by-step guidebook for understanding—and implementing—integrated financial risk measurement and management The Fundamentals of Risk Measurement introduces the state-of-the-art tools and practices necessary for planning, executing, and maintaining risk management in today’s volatile financial environment. This comprehensive book provides description and analysis of topics including: Economic capital Risk adjusted return on capital (RAROC) Shareholder Value Added (SVA) Value at Risk (VaR) Asset/liability management (ALM) Credit risk for a single facility Credit risk for portfolios Operating risk Inter-risk diversification The Basel Committee Capital Accords The banking world is driven by risk. The Fundamentals of Risk Measurement shows you how to quantify that risk, outlining an integrated framework for risk measurement and management that is straightforward, practical for implementation, and based on the realities of today’s tumultuous global marketplace. “Banks make money in one of two ways: providing services to customers and taking risks. In this book, we address the business of making money by taking risk....”—From the Introduction In The Fundamentals of Risk Measurement, financial industry veteran Chris Marrison examines what banks must do to succeed in the business of making money by taking risk. Encompassing the three primary areas of banking risk—market, credit, and operational—and doing so in a uniquely intuitive, step-by-step format, Marrison provides hands-on details on the primary tools for financial risk measurement and management, including: Plain-English evaluation of specific risk measurement tools and techniques Use of Value at Risk (VaR) for assessment of market risk for trading operations Asset/liability management (ALM) techniques, transfer pricing, and managing market and liquidity risk The many available methods for analyzing portfolios of credit risks Using RAROC to compare the risk-adjusted profitability of businesses and price transactions In addition, woven throughout The Fundamentals of Risk Measurement are principles underlying the regulatory capital requirements of the Basel Committee on Banking Supervision, and what banks must do to understand and implement them. The requirements are defined, implications of the New Capital Accord are presented, and the major steps that a bank must take to implement the New Accord are discussed. The resulting thumbnail sketch of the Basel Committee, and specifically the New Capital Accord, is valuable as both a ready reference and a foundation for further study of this important initiative. Risk is unavoidable in the financial industry. It can, however, be measured and managed to provide the greatest risk-adjusted return, and limit the negative impacts of risk to a bank’s shareholders as well as potential borrowers and lenders. The Fundamentals of Risk Management provides risk managers with an approach to risk-taking that is both informed and prudent, one that shows operations managers how to control risk exposures as it allows decision-making executives to direct resources to opportunities that are expected to create maximum return with minimum risk. The result is today’s most complete introduction to the business of risk, and a valuable reference for anyone from the floor trader to the officer in charge of overseeing the entire risk management operation.
Risk Evaluation And Financial Crises
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Author : Vadim Tsudikman
language : en
Publisher: Pearson Education
Release Date : 2011-07-13
Risk Evaluation And Financial Crises written by Vadim Tsudikman and has been published by Pearson Education this book supported file pdf, txt, epub, kindle and other format this book has been release on 2011-07-13 with Business & Economics categories.
The classification, measurement, and management of risk are central problems in the investment process. Over the past 25 years, Value at Risk (VaR) became the common universal standard in risk measurement. However, the financial crisis of 2007/2009 clearly demonstrated great discrepancies in risk estimates based on this indicator. In this report, three of the field’s leading experts objectively consider each key criticism of VaR in recent professional literature, including VaR’s underestimation of the magnitude and frequency of extreme outcomes, the difficulty of obtaining reliable VaR estimates for complex portfolios, the limited value of historical data, imperfections in the effective market hypothesis that underlies VaR, and several more. Next, the authors carefully review refinements and alternatives that have been proposed as potential replacements or complements, including Conditional VaR (Expected Shortfall), Shock VaR, modifications in the handling of parameters uncertainty, liquidity adjustment, higher moments, and more. They conclude by discussing why a sound risk management system continues to require deep understanding of complex adaptive and often irrational market mechanisms and still cannot be reduced to a mere combination of indicators, no matter how sophisticated they are.
Liquidity Risk Measurement And Management
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Author : Leonard Matz
language : en
Publisher: John Wiley & Sons
Release Date : 2006-11-10
Liquidity Risk Measurement And Management written by Leonard Matz and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-11-10 with Business & Economics categories.
Major events such as the Asian crisis in 1997, the Russian default on short-term debt in 1998, the downfall of the hedge fund long-term capital management in 1998 and the disruption in payment systems following the World Trade Center attack in 2001, all resulted in increased management’s attention to liquidity risk. Banks have realized that adequate systems and processes for identifying, measuring, monitoring and controlling liquidity risks help them to maintain a strong liquidity position, which in turn will increase the confidence of investors and rating agencies as well as improve funding costs and availability. Liquidity Risk Measurement and Management: A Practitioner’s Guide to Global Best Practices provides the best practices in tools and techniques for bank liquidity risk measurement and management. Experienced bankers and highly regarded liquidity risk experts share their insights and practical experiences in this book.
An Introduction To Value At Risk
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Author : Moorad Choudhry
language : en
Publisher: John Wiley & Sons
Release Date : 2007-01-11
An Introduction To Value At Risk written by Moorad Choudhry and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007-01-11 with Business & Economics categories.
The value-at-risk measurement methodology is a widely-used tool in financial market risk management. The fourth edition of Professor Moorad Choudhry’s benchmark reference text An Introduction to Value-at-Risk offers an accessible and reader-friendly look at the concept of VaR and its different estimation methods, and is aimed specifically at newcomers to the market or those unfamiliar with modern risk management practices. The author capitalises on his experience in the financial markets to present this concise yet in-depth coverage of VaR, set in the context of risk management as a whole. Topics covered include: Defining value-at-risk Variance-covariance methodology Monte Carlo simulation Portfolio VaR Credit risk and credit VaR Topics are illustrated with Bloomberg screens, worked examples, exercises and case studies. Related issues such as statistics, volatility and correlation are also introduced as necessary background for students and practitioners. This is essential reading for all those who require an introduction to financial market risk management and value-at-risk.
Market Risk Management For Hedge Funds
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Author : Francois Duc
language : en
Publisher: John Wiley & Sons
Release Date : 2010-04-01
Market Risk Management For Hedge Funds written by Francois Duc and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-04-01 with Business & Economics categories.
This book provides a cutting edge introduction to market risk management for Hedge Funds, Hedge Funds of Funds, and the numerous new indices and clones launching coming to market on a near daily basis. It will present the fundamentals of quantitative risk measures by analysing the range of Value-at-Risk (VaR) models used today, addressing the robustness of each model, and looking at new risk measures available to more effectively manage risk in a hedge fund portfolio. The book begins by analysing the current state of the hedge fund industry - at the ongoing institutionalisation of the market, and at its latest developments. It then moves on to examine the range of risks, risk controls, and risk management strategies currently employed by practitioners, and focuses on particular risks embedded in the more classic investment strategies such as Long/Short, Convertible Arbitrage, Fixed Income Arbitrage, Short selling and risk arbitrage. Addressed along side these are other risks common to hedge funds, including liquidity risk, leverage risk and counterparty risk. The book then moves on to examine more closely two models which provide the underpinning for market risk management in investment today - Style Value-at-Risk and Implicit Value-at-Risk. As well as full quantitative analysis and backtesting of each methodology, the authors go on to propose a new style model for style and implicit Var, complete with analysis, real life examples and backtesting. The authors then go on to discuss annualisation issues and risk return before moving on to propose a new model based on the authors own Best Choice Implicit VaR approach, incorporating quantitative analysis, market results and backtesting and also its potential for new hedge fund clone products. This book is the only guide to VaR for Hedge Funds and will prove to be an invaluable resource as we embark into an era of increasing volatility and uncertainty.
International Convergence Of Capital Measurement And Capital Standards
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Author :
language : en
Publisher: Lulu.com
Release Date : 2004
International Convergence Of Capital Measurement And Capital Standards written by and has been published by Lulu.com this book supported file pdf, txt, epub, kindle and other format this book has been release on 2004 with Bank capital categories.
Measuring Market Risk
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Author : Kevin Dowd
language : en
Publisher: John Wiley & Sons
Release Date : 2003-02-28
Measuring Market Risk written by Kevin Dowd and has been published by John Wiley & Sons this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-02-28 with Business & Economics categories.
The most up-to-date resource on market risk methodologies Financial professionals in both the front and back office require an understanding of market risk and how to manage it. Measuring Market Risk provides this understanding with an overview of the most recent innovations in Value at Risk (VaR) and Expected Tail Loss (ETL) estimation. This book is filled with clear and accessible explanations of complex issues that arise in risk measuring-from parametric versus nonparametric estimation to incre-mental and component risks. Measuring Market Risk also includes accompanying software written in Matlab—allowing the reader to simulate and run the examples in the book.
Measuring Systemic Risk Adjusted Liquidity Srl
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Author : Andreas Jobst
language : en
Publisher: International Monetary Fund
Release Date : 2012-08-01
Measuring Systemic Risk Adjusted Liquidity Srl written by Andreas Jobst and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-08-01 with Business & Economics categories.
Little progress has been made so far in addressing—in a comprehensive way—the externalities caused by impact of the interconnectedness within institutions and markets on funding and market liquidity risk within financial systems. The Systemic Risk-adjusted Liquidity (SRL) model combines option pricing with market information and balance sheet data to generate a probabilistic measure of the frequency and severity of multiple entities experiencing a joint liquidity event. It links a firm’s maturity mismatch between assets and liabilities impacting the stability of its funding with those characteristics of other firms, subject to individual changes in risk profiles and common changes in market conditions. This approach can then be used (i) to quantify an individual institution’s time-varying contribution to system-wide liquidity shortfalls and (ii) to price liquidity risk within a macroprudential framework that, if used to motivate a capital charge or insurance premia, provides incentives for liquidity managers to internalize the systemic risk of their decisions. The model can also accommodate a stress testing approach for institution-specific and/or general funding shocks that generate estimates of systemic liquidity risk (and associated charges) under adverse scenarios.