Liquidity Risk Loss Estimation in Commercial Banks Using Stocastic Process Approach

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Dehghani Ahmadabad Mohammad Reza; SAEIDI KOUSHA MAHDI

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Journal: JOURNAL OF FINANCIAL MANAGEMENT STRATEGY Year:2020 | Volume:8 | Issue:29 Page(s): 1-22

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Title

Liquidity Risk Loss Estimation in Commercial Banks Using Stocastic Process Approach

Author(s)

Dehghani Ahmadabad Mohammad Reza | SAEIDI KOUSHA MAHDI | Issue Writer Certificate

Keywords

Liquidity RiskQ1

Liquidity NeedsQ1

Stochastic ProcessQ1

Value at Risk (VaR)Q2

Abstract

Liquidity is such vital for commercial banks to survive and continue to operate, hence measuring and managing Liquidity Risk is very important for them and this has become more important after the 2008 crisis. This study, by defining the liquidity need index, which itself is a function of changes in the volume of bank assets and liabilities, has quantified the loss of Liquidity Risk. The main objective is to estimate the value of risk (VaR) and conditional value of risk (cVaR) as measure of Liquidity Risk losses in commercial banks. To quantify the risk of liquidity, first, the bank's Liquidity Needs are predicted by Stochastic Process models and then, those scenarios that lead to a liquidity deficit are calculated. This deficit is compensated by the sale􀀅 of􀀅 part􀀅 of􀀅 bank’ s assets and the loss from sales below the real price is considered as a measure for Liquidity Risk losses and VaR and cVaR are calculated􀀅 through􀀅 this􀀅 meaure’ s􀀅 distribution. This research has shown that optimal assets sale can bring significant economic savings to the bank.

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APA: Copy

Dehghani Ahmadabad, Mohammad Reza, & SAEIDI KOUSHA, MAHDI. (2020). Liquidity Risk Loss Estimation in Commercial Banks Using Stocastic Process Approach. JOURNAL OF FINANCIAL MANAGEMENT STRATEGY, 8(29 ), 1-22. SID. https://sid.ir/paper/387430/en

Vancouver: Copy

Dehghani Ahmadabad Mohammad Reza, SAEIDI KOUSHA MAHDI. Liquidity Risk Loss Estimation in Commercial Banks Using Stocastic Process Approach. JOURNAL OF FINANCIAL MANAGEMENT STRATEGY[Internet]. 2020;8(29 ):1-22. Available from: https://sid.ir/paper/387430/en

IEEE: Copy

Mohammad Reza Dehghani Ahmadabad, and MAHDI SAEIDI KOUSHA, “Liquidity Risk Loss Estimation in Commercial Banks Using Stocastic Process Approach,” JOURNAL OF FINANCIAL MANAGEMENT STRATEGY, vol. 8, no. 29 , pp. 1–22, 2020, [Online]. Available: https://sid.ir/paper/387430/en

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