Asset Allocation with Liquidity-Adjusted Market Risk Modeling: Empirical Relevance to Multiple-Asset Portfolios

Abstract

In this paper, the author demonstrate a practical approach for measurement, management and control of market risk exposure for financial trading portfolios. This approach is based on the renowned concept of Liquidity-Adjusted Value at Risk (L-VaR) along with the creation of a software tool utilizing matrix-algebra technique under the notion of different correlation factors and liquidation horizons.