Risk management for whales

Rama Cont and Lakshithe Wagalath propose a portfolio risk model that integrates market risk with liquidation costs. Their model provides a framework for computing liquidation-adjusted risk measures such as liquidation-adjusted value-at-risk. Real-life examples reveal a substantial impact of liquidation costs on portfolio risk for portfolios with large concentrated positions


The quantitative models commonly used in financial risk management have mainly focused on the statistical modelling of variations in the (mark-to-) market value of financial portfolios, in order to estimate a risk measure – such as value-at-risk or expected shortfall – related to market losses over a given time horizon. These risk measures are then used for determining, for example, capital requirements or margin requirements in order to provision for losses in extreme risk scenarios.


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