Post by Alejandro Bernales on Nov 21, 2013 3:57:44 GMT 4
Thinly Traded Securities and Risk Management
Banque de France ; Universidad de Chile
Diether W. Beuermann
University of Maryland - College Park; Durham Business School; Inter-American Development Bank (IADB); Universidad de Lima - Facultad de Economia
Pontificia Universidad Catolica de Chile
November 7, 2013
Abstract: Thinly traded securities exist in both emerging and well developed markets. However, plausible estimations of market risk measures for portfolios with infrequently traded securities have not been explored in the literature. We propose a methodology to calculate market risk measures based on the Kalman filter which can be used on incomplete datasets. We implement our approach in a fixed-income portfolio within a thin trading environment. However, a similar approach may be also applied to other markets with thinly traded securities. Our methodology provides reliable market risk measures in portfolios with infrequent trading.