Risk Management for Whales

We propose a portfolio risk model which integrates market risk with liquidation costs. The model provides a framework for computing liquidation-adjusted risk measures such as Liquidation-adjusted VaR (LVaR). Calculation of... [ view full abstract ]

We propose a portfolio risk model which integrates market risk with liquidation costs. The model provides a framework for computing liquidation-adjusted risk measures such as Liquidation-adjusted VaR (LVaR). Calculation of liquidation-adjusted Value-at-Risk (LVaR) for simulated and real-life examples reveals a substantial impact of liquidation costs on portfolio risk for portfolios with large concentrated positions.