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Scientific Methodology to Model Liquidity Risk in UCITS Funds with an Asset Liability Approach: A Global Response to Financial and Prudential Requirements

Abstract : The financial crisis began with the collapse of Lehman Brothers and the subprime asset backed securities debacle. Credit risk was turned into liquidity risk, resulting from a lack of confidence among financial institutions. To overcome this problem, Basel III agreements for banks and 2009/65/EC UCITS IV Directive (UCITS IV) for regulated mutual funds, enhanced the recognition of liquidity risk. In this article, we focus on the evaluation of liquidity risk for UCITS funds. We will propose a quantified way to apprehend this risk through an asset liability approach. For assets, we will show that liquidity risk is a new type of risk and the current way to deal with is based solely on observed variables without any theoretical link. We propose a heuristic approach to combine the numerous liquidity risk indicators. To model and forecast the liability side we provide several parameters to create a Kalman filter process. This paper brings a comprehensive response to the regulatory requirements.
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https://hal.univ-lorraine.fr/hal-01371849
Contributor : Cerefige Ul <>
Submitted on : Monday, September 26, 2016 - 3:06:30 PM
Last modification on : Tuesday, May 4, 2021 - 11:57:41 AM

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Pascal Damel, Nadège Ribau-Peltre. Scientific Methodology to Model Liquidity Risk in UCITS Funds with an Asset Liability Approach: A Global Response to Financial and Prudential Requirements. Advances in Intelligent Systems and Computing (ISSN : 2194-5357), 360, pp.389-399, 2015, Advances in Intelligent Systems and Computing, 978-3-319-18166-0. ⟨10.1007/978-3-319-18167-7_34⟩. ⟨hal-01371849⟩

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