The Liquidity-at-Risk (short: LaR) is a quantity to measure financial risks and is the maximum net liquidity drain relative to the expected liquidity position which should not be exceeded at a given confidence level (e.g. 95%). The LaR is analog to the Value-at-Risk (VaR) where a quantile of the EBIT-distribution is considered, however it does take stochastic cash flows into account.
Video Liquidity at risk
Critics
Statistical measures for financial risk are not intuitive. Increasing the confidence level (e.g. from 99.0% to 99.9%) does not capture very rare events with possibly high impact. The only way around is to use extreme value theory for modelling the distribution tails. In other words: Statistical liquidity risk modelling approaches do not provide certainty in terms of a reliable lower limit for future liquidity.
Maps Liquidity at risk
See also
- Margin at risk
- Value at risk
- Profit at risk
References
Source of article : Wikipedia
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