Measuring banks’ liquidity risk: An option-pricing approach

He, Liang; An, Yunbi

doi:10.1016/j.jbankfin.2019.105703

Cited by 9 publications

(2 citation statements)

References 57 publications

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“…For instance, Lee [30] estimated the firm value and its volatility to assess the default probability in credit risk applications; this was followed by Charitou et al [31], Doumpos et al [32], Afik et al [33], and more recently by Andreou et al [34] and Levine and Wu [35]. Other similar approximations were applied by Zhang et al [36] in the case of a bank's liquidity risk framework and by Lovreta and Silaghi [37] to obtain the surface of CDS implied in a firm's asset volatility.…”

Section: Methodsmentioning

confidence: 99%

Real Options Volatility Surface for Valuing Renewable Energy Projects

González-Muñoz,

Molina-Muñoz,

Mora-Valencia

et al. 2024

Energies

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Real options analysis is an adequate tool with which to value companies and projects under investment uncertainty. Nevertheless, the estimation of the volatility to be employed in the valuation procedure is a challenging task. The volatility parameter not only affects the investment value, but is also important in strategic decision-making. The aim of this paper is to provide a suitable methodology for the estimation of volatility in real option project valuation, with a focus on renewable energy projects. Our procedure is a straightforward extension of the implied volatility methodology employed for financial options; however, our proposal considers the debt-to-equity ratio instead of the moneyness or strike price. Thus, the volatility of the project is the implied volatility obtained from the volatility surface of comparable firms for a certain valuation date and the given debt-to-equity relation of a renewable project. Furthermore, the natural spline model is utilized to calibrate the volatility surface for real option valuation purposes. The empirical results demonstrate that the implied volatility ranges from 3.37% to 113.78%, with median values between 16.42% and 47.10%, in the period from January 2014 to December 2020, for our research study. Finally, we consider that our proposal is a natural and straightforward manner in which to estimate the implied volatility for projects under investment uncertainty, since real option valuation is based on the same idea and tools used in financial option pricing.

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Section: Methodsmentioning

confidence: 99%

Real Options Volatility Surface for Valuing Renewable Energy Projects

González-Muñoz,

Molina-Muñoz,

Mora-Valencia

et al. 2024

Energies

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“…Later, Yang et al [5] suggested that liquidity risk was regarded as the main factor in Yu'E Bao's investment strategy, and liquidity risk was exceptionally high when investors had strong consumption demand in 2019. Zhang et al [6] suggested that an optimal liquidity ratio can also be used to evaluate liquidity needs in 2020. Liquidity-adjusted risk models based on the idea of bid-ask spread were brought by researchers [7][8][9], but the liquidity risk evaluation of IMMFs still needs to be further explored.…”

Section: Introductionmentioning

confidence: 99%

Risk of Internet Money Market Funds and Its Spillover Effect: Based on La-VaR, DCC-GARCH and Minimum Spanning Tree

Huizi¹,

Huizi²,

Wang³

et al. 2022

Journal of Internet Technology

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<p>Internet money market funds (IMMFs) are China’s most wildly participated Internet financial products. This research mainly focused on the liquidity risk of IMMFs by establishing a La-VaR model with the cost of unit liquidity and further discussed the liquidity risk spillover between different IMMFs with La-VaR and minimum spanning tree algorithm. The results show the following: (a) The proposed La-VaR model is superior to the conventional VaR in evaluating the liquidity risk of IMMFs. The case study on Yu’E Bao also proves its superiority. (b) IMMFs with greater yield volatility face more significant liquidity risk pressure. (c) Risk spillover effects exist in IMMFs, and IMMFs with an extensive fund scale are more likely to spread liquidity risk to the entire market.</p> <p> </p>

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