Post by Sapphire Capital on Feb 7, 2009 4:38:43 GMT 4
Liquidity Adjusted VaR Model: An Extension
Emmanuel Fragniere
Geneva School of Business Administration
Nils Tuchschmid
Haute école de gestion de Genève
Zhang Qun
December, 11 2008
Abstract:
This paper proposes a new framework for the calculation of liquidity adjusted value at risk, or LVaR. The model presented in this paper is extended from Almgren and Chriss's mean-variance optimal trading approach (1999 and 2000). Contrary to Almgren and Chriss's model, we express price fluctuation dynamic in terms of return and allow variations for both bid-ask spread and price impact. Numerical experiments show our formulation provides results significantly different from Almgren and Chriss's solution. We then extend the model to calculate the LVaR for portfolios.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1314866_code644110.pdf?abstractid=1314866&mirid=1
Emmanuel Fragniere
Geneva School of Business Administration
Nils Tuchschmid
Haute école de gestion de Genève
Zhang Qun
December, 11 2008
Abstract:
This paper proposes a new framework for the calculation of liquidity adjusted value at risk, or LVaR. The model presented in this paper is extended from Almgren and Chriss's mean-variance optimal trading approach (1999 and 2000). Contrary to Almgren and Chriss's model, we express price fluctuation dynamic in terms of return and allow variations for both bid-ask spread and price impact. Numerical experiments show our formulation provides results significantly different from Almgren and Chriss's solution. We then extend the model to calculate the LVaR for portfolios.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1314866_code644110.pdf?abstractid=1314866&mirid=1