Abstract
Liquidity risk is an important type of risk, especially during times of crises. As observed by Acerbi & Scandolo (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 talk discusses a cash-invariant liquidity-adjusted risk measure that can naturally be interpreted as a capital requirement. The difference between our construction and the one of Acerbi & Scandolo (2008) is analyzed in the framework of capital requirements using the notion of eligible assets, as introduced by Artzner, Delbaen & Koch-Medina (2009). Numerical case studies illustrate how price impact and limited access to financing influence the liquidity-adjusted risk measurements.
[PDF] Slides of the presentation.