Considering Market Liquidity Factor in VaR Calculation

The article is devoted to one of the key issues of risk management in financial markets - the assessment of market risk caused by the volatility of financial asset prices. Despite the variety of approaches and methods for quantitative calculation of this factor, the methodology for calculating VaR has been the undisputed leader in this field of research and practical implementation for a long time. The VaR methodology provides a well-perceived indicator, the calculation of which is based on an analysis of the volatility of a particular market or financial asset. Liquidity is a factor that takes less time to calculate possible losses. However, even the limited number of studies that adjust the VaR indicator in one way or another, taking into account the liquidity factor, consider this liquidity as a characteristic of the market of a particular asset (which is absolutely true), but without taking into account the amount of funds accumulated by the investor in this asset (which is, to say the least, strange). The authors propose an approach to assessing market risk by adjusting traditional methods of calculating VaR, taking into account two parameters simultaneously: 1) characteristics of the liquidity level of the asset market based on real demand from buyers 2) the amount of funds (the number of asset units) accumulated in the investor’s portfolio segment. In the simplest case, the methodology can be based on the current (instantaneous) cross-section of the number and volume of purchase orders.