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Liquidity Risk Measurement of Commercial Bank based on EGARCH-POT Model

Liang Wang, Chongzhen Huang

Abstract


Liquidity risk measurement is the basis for effective liquidity risk management of commercial bank. Liquidity gap is selected as the measurement index. It is tested that logarithmic difference time series of the bank liquidity gap have the characteristics of peak and fat tail distribution and high-order ARCH effect. Risk measuring method based on EGARCH model and POT model can better reflect the peak and fat tail characteristics of its residual series. Therefore EGARCH-POT model is established for measure the liquidity risk. By using the maximum likelihood estimation method for EGARCH model’s perturbation parameter estimation, the values of VaR and ES are calculated and tested. After comparing with the values under normal distribution, it can make the conclusion that EGARCH-POT Model can improve the accuracy of liquidity risk measurement of commercial bank.

Keywords


commercial bank, liquidity risk measurement, EGARCH-POT model, VaR, ES

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