Thinly traded securities and risk management

  • Alejandro Bernales Banque de France and Universidad de Chile (Centro de Finanzas). Address: 31 Rue Croix des Petits Champs, 75001 Paris,
  • Diether W. Beuermann Inter-American Development Bank. Address: 1300 New York Ave. NW, Washington, DC 20577
  • Gonzalo Cortazar Pontificia Universidad Católica de Chile (Ingeniería Industrial y de Sistemas). Address: Vicuña Mackenna 4860, Santiago

Abstract

Thinly traded securities exist in both emerging and well developed markets. However, plausible estimations of market risk measures for portfolios with infrequently traded securities have not been explored in the literature. We propose a methodology to calculate market risk measures based on the Kalman filter which can be used on incomplete datasets. We implement our approach in a fixed-income portfolio within a thin trading environment. However, a similar approach may be also applied to other markets with thinly traded securities. Our methodology provides reliable market risk measures in portfolios with infrequent trading.
Keywords Incomplete panels, Kalman filter, market risk, risk management, thin trading, value-at-risk
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How to Cite
Bernales, A., Beuermann, D., & Cortazar, G. (2014). Thinly traded securities and risk management. Estudios de Economía, 41(1), pp. 5-48. Retrieved from https://estudiosdeeconomia.uchile.cl/index.php/EDE/article/view/34413/43278
Section
Articles
Published
2014-11-13