Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/205756 
Year of Publication: 
2017
Citation: 
[Journal:] European Research on Management and Business Economics (ERMBE) [ISSN:] 2444-8834 [Volume:] 23 [Issue:] 3 [Publisher:] Elsevier [Place:] Amsterdam [Year:] 2017 [Pages:] 157-164
Publisher: 
Elsevier, Amsterdam
Abstract: 
The last global financial crisis (2007–2008) has highlighted the weaknesses of value at risk (VaR) as ameasure of market risk, as this metric by itself does not take liquidity risk into account. To address this problem, the academic literature has proposed incorporating liquidity risk into estimations of market risk by adding the VaR of the spread to the risk price. The parametric model is the standard approach used to estimate liquidity risk. As this approach does not generate reliable VaR estimates, we propose estimating liquidity risk using more sophisticated models based on extreme value theory (EVT). We find that the approach based on conditional extreme value theory outperforms the standard approach in terms ofaccurate VaR estimates and the market risk capital requirements of the Basel Capital Accord.
Subjects: 
Value-at-risk
Liquidity risk
Extreme value theory
Basel capital accord
JEL: 
G32
C14
C22
C53
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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