Value at Risk and Expected Shortfall for large portfolios

We argue that the practise of valuing the portfolio is important for the calculation of the Value at Risk and the Expected Shortfall. In particular, the seller (buyer) of an asset does not face a horizontal demand (supply) curve. We propose a new approach for incorporating this fact into the risk me...

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Bibliographic Details
Published in:Finance research letters 2011-06, Vol.8 (2), p.59-68
Main Authors: Lönnbark, Carl, Holmberg, Ulf, Brännäs, Kurt
Format: Article
Language:English
Subjects:
Bank
Comparative analysis
Demand
Demand Supply Liquidity risk Limit order book Bank Sweden
Limit order book
Liquidity risk
Portfolio investments
Risk assessment
Studies
Supply
Sweden
Valuation
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Summary:We argue that the practise of valuing the portfolio is important for the calculation of the Value at Risk and the Expected Shortfall. In particular, the seller (buyer) of an asset does not face a horizontal demand (supply) curve. We propose a new approach for incorporating this fact into the risk measures and in an empirical illustration we compare it to a competing approach. We find substantial differences.
ISSN:1544-6123
1544-6131
DOI:10.1016/j.frl.2010.10.002