Original Research

Portfolio liquidity-adjusted value-at-risk

Marius Botha
South African Journal of Economic and Management Sciences | Vol 11, No 2 | a309 | DOI: https://doi.org/10.4102/sajems.v11i2.309 | © 2011 Marius Botha | This work is licensed under CC Attribution 4.0
Submitted: 28 September 2011 | Published: 28 September 2011

About the author(s)

Marius Botha, University of the Free State

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An important, yet neglected, aspect of risk management is liquidity risk; changes in value due to reduced availability of traded financial instruments. This ubiquitous risk has emerged as one of the key drivers of the developing “credit crunch” with global financial liquidity plummeting since the crisis began. Despite massive cash injections by governments, the crisis continues. Contemporary research has focussed on the liquidity component of single instruments’ value-at-risk. This work is extended in this article to measure portfolio value-at-risk, employing a technique which integrates individual instruments’ liquidity-adjusted VaR into a portfolio environment without a commensurate increase of statistical assumptions.


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