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liquidity sign in to follow this
non-normality sign in to follow this
Cornish-Fisher sign in to follow this
skewness sign in to follow this
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Accounting for Non-normality in Liquidity Risk
Year Of Publication: 2009
Month Of Publication: January
Pages: 21
Download Count: 135
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Comment Num: 0
Language: EN
Source:
Who Can Read: Free
Date: 5-3-2009
Publisher: Administrator
Summary
It has been frequently discussed, that returns are not normally distributed. Liquiditycosts, measuring market liquidity, are similarly non-normally distributed displayingfat tails and skewness. Liquidity risk models either ignore this fact or use the historicaldistribution to empirically estimate worst losses. We suggest a new and easilyimplementable, parametric approach based on the Cornish-Fisher approximation toaccount for non-normality in liquidity risk. We show how to implement this methodologyin a large sample of stocks and provide evidence that it produces much moreaccurate results than an alternative empirical risk estimation.
Author(s)
Ernst, Cornelia Sign in to follow this author
Stange, Sebastian Sign in to follow this author
Kaserer, Christoph Sign in to follow this author
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