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The Influence of Liquidity Risk on Value-at-Risk Calculations

Author

Listed:
  • Bor Bricelj

    (University of Maribor, Slovenia)

  • Sebastjan Strašek

    (University of Maribor, Slovenia)

  • Timotej Jagric

    (University of Maribor, Slovenia)

Abstract

In this article we implement liquidity in the standard value-at-risk framework. We incorporate bid-ask spread into basic VaR models. We then test these models on three foreign markets and on a domestic one. We conclude that liquidity VaR models adequately measure market risk. On one hand, the liquidity VaR methodology represents advancement in market risk analysis, but on the other hand, those models are not yet robust enough to pass all backtests. Comparing the results between markets we conclude that the results for the domestic market are comparable to those of foreign ones despite their size difference.

Suggested Citation

  • Bor Bricelj & Sebastjan Strašek & Timotej Jagric, 2013. "The Influence of Liquidity Risk on Value-at-Risk Calculations," Management, University of Primorska, Faculty of Management Koper, vol. 8(3), pages 183-197.
    • Handle: RePEc:mgt:youmng:v:8:y:2013:i:3:p:183-197
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