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Liquidity Risk with Coherent Risk Measures

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  • Hyejin Ku

Abstract

This paper concerns questions related to the regulation of liquidity risk, and proposes a definition of an acceptable portfolio. Because the concern is with risk management, the paper considers processes under the physical (rather than the martingale) measure. Basically, a portfolio is 'acceptable' provided there is a trading strategy (satisfying some limitations on market liquidity) which, at some fixed date in the future, produces a cash-only position, (possibly) having positive future cash flows, which is required to satisfy a 'convex risk measure constraint'.

Suggested Citation

  • Hyejin Ku, 2006. "Liquidity Risk with Coherent Risk Measures," Applied Mathematical Finance, Taylor & Francis Journals, vol. 13(2), pages 131-141.
  • Handle: RePEc:taf:apmtfi:v:13:y:2006:i:2:p:131-141
    DOI: 10.1080/13504860600563143
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    References listed on IDEAS

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    1. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
    2. Maureen O'Hara, 2001. "Overview: market structure issues in market liquidity," BIS Papers chapters,in: Bank for International Settlements (ed.), Market liquidity: proceedings of a workshop held at the BIS, volume 2, pages 1-8 Bank for International Settlements.
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