Calculation and empirical study of dynamic liquidity risk based on the generalized error distribution (ged)-garch model

Abstract

The traditional VaR ignores the existence of liquidity risk, with assuming trade is frictionless. The studies of the liquidity risk are mostly static. From the view of time-varying point, this paper put forward the concept of dynamic liquidity risk, based on the improved bid-ask spread model for taking into account the endogenous and exogenous liquidity risk. The dynamic liquidity risk was carried out by the GED-GARCH model, and the empirical study show that the method can accurately measure the dynamic liquidity risk.