Analysis And Application For Measuring The Market Liquidity Risk With VaR

In the financial macket, there are lots of methods for measuring investment risks. Value-at-Risk(VaR for short) is one of the most popular. VaR method is used to measure the maximum possible loss of a financial asset or a portfolio in a coming holding period, with the given confidence level. The market liquidity risk, which is divided into the exogenous one and the endogenous one, is the risk that investors can't buy or sell the asset with the median price. The exogenous one, which is the uncertainty of the transaction costs caused by the external factors, affects all market participants and can't be influenced by the individual. The endogenous one, which is the profit uncertainty caused by the investment behavior of single investor, differs from individual to individual. As China securities market continues to develop, the market liquidity risk has turned into the systematic one of China securities market, and so how to use VaR method to measure the liquidity risk has also turned into one key problem of risk management and control.In this paper, the individual noise signal is involved, and the VaR model measuring endogenous liquidity risk of single stock is established, and the perceived risk is analyzed, and the model is expanded on the basis of overconfidence, and finally the empirical analysis is used to verify the conclusions.In chapter1, the rising and development status of VaR is elaborated, and the market liquidity risk and overconfidence is elaborated briefly.In chapter 2, the traditional risk measurement methods and VaR computational methods is elaborated, and VaR computations for general distribution,normal distribution,asset portfolio and exogenous liquidity risk is listed.In chapter 3, the individual noise signal is involved to imitate investors'investment behaviors such as getting market information, and the VaR model measuring endogenous liquidity risk of single stock is established, and two perceived risks for the endogenous risk—yield loss probability and expected loss is measured and analized, providing the reference for investors.In chapter 4, on the basis of overconfidence VaR model is expanded in two ways—weighted model and varience model, and the computation of the VaR value,yield loss probability and expected loss in each model and how they vary as the overconfidence degree are elaborated, and the conclusions are verified with empirical analysis, which provides theoritical principal for investors to avoid this psychology.