INCORPORATING LIQUIDITY RISK INTO VAR MODEL
TO IMPROVE RISK MANAGEMENT
AND APPLYING THE LIQUIDITY ADJUSTED VALUE AT RISK MODEL
ON VIETNAMESE STOCK MARKET
Student:
Ten truong:
Ten khoa hoc:
September, 2012
INCORPORATING LIQUIDITY RISK INTO VAR MODEL
TO IMPROVE RISK MANAGEMENT
AND APPLYING THE LIQUIDITY ADJUSTED VALUE AT RISK MODEL
ON VIETNAMESE STOCK MARKET
by
student
Avised by
Ten giao su
Submitted to Ten khoa of Ten truong
in the partial fulfilment of the requirements
for the degree of
Master of ...?
Dissertation Committee
...Ten thanh vien hoi dong
ABSTRACT
In this paper, based on Bangia et. al (1999) Liquidity Adjusted Value at Risk, an explanation and demonstration for the importance of integrate liquidity risk component into Value at Risk Model are presented. The component is considered to be resulted from the exogenous liquidity risk, indeed, the bid-ask spread of a stock or a portfolio.
This research is conducted from the analysis of an estimation of Value at Risk (VaR) and Liquidity adjusted Value at Risk for two portfolios containing stocks that are currently trading on Vietnamese Stock Market. After applying the Bangia Model to calculate, the backtesting will be executed to check the accuracy level of the results. The difference between the results of two portfolios, according to separate approaches will be the evidence to reach the conclusion of the research.
Table of Contents
List of tables v
List of figures vi
Chapter 1 – Introduction 1
1.1 BACKGROUND TO THE RESEARCH 1
1.2 REASONS FOR CHOOSING THE TOPIC 3
1.3 RESEARCH PURPOSES AND KEY RESEARCH QUESTIONS 3
1.4 STRUCTURE OF DISSERTATION 4
Chapter 2 - Literature review 6
2.1 RISK MANAGEMENT 6
2.2 LIQUIDITY RISK MANAGEMENT 7
2.2.1 Why manage Liquidity Risk? 7
2.2.2 Liquidity Risk Measurement 11
2.3 VALUE AT RISK 11
2.3.1 VaR description 11
2.3.2 VaR Approach 12
2.4 INTEGRATION OF LIQUDITY RISK INTO VAR MODEL 15
2.4.1. Liquidity...