Abstract
Liquidity risk is an important type of risk, especially during times of crises. As observed by Acerbi and Scandolo (Quant Financ 8(7):681–691, 2008), it requires adjustments to classical portfolio valuation and risk measurement. Main drivers are two dimensions of liquidity risk, namely price impact of trades and limited access to financing. The key contribution of the current paper is the construction of a new, cash-invariant liquidity-adjusted risk measure that can naturally be interpreted as a capital requirement. We clarify the difference between our construction and the one of Acerbi and Scandolo (Quant Financ 8(7):681–691, 2008) in the framework of capital requirements using the notion of eligible assets, as introduced by Artzner et al. (Astin Bull 39(1):101–116, 2009). Numerical case studies illustrate how price impact and limited access to financing influence the liquidity-adjusted risk measurements.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
