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liquidity sign in to follow this
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Liquidity-Adjusted Intraday Value at Risk Modeling and Risk Management: An Application to Data from Deutsche Börse
Year Of Publication: 2014
Month Of Publication: February
Resource Link: Click here to open
Pages: 51
Download Count: 0
View Count: 1324
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 2-22-2014
Publisher: Administrator
Summary
This paper develops a high-frequency risk measure, the Liquidity-adjusted Intraday Value at Risk (LIVaR). Our objective is to explicitly consider the endogenous liquidity dimension associated with order size. Taking liquidity into consideration when using intraday data is important because significant position changes over very short horizons may have large impacts on stock returns. By reconstructing the open Limit Order Book (LOB) of Deutsche B?rse, the changes of tick-by-tick ex-ante frictionless return and actual return are modeled jointly using a Log-ACD-VARMA-MGARCH structure. This modeling helps to identify the dynamics of frictionless and actual returns, and to quantify the risk related to the liquidity premium. From a practical perspective, our model can be used not only to identify the impact of ex-ante liquidity risk on total risk, but also to provide an estimation of VaR for the actual return at a point in time.
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Author(s)
Dionne, M. Georges Sign in to follow this author
Pacurar, Maria Sign in to follow this author
Zhou, Xiaozhou Sign in to follow this author
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