Application of Exogenous Liquidity Risk Models to Analyze Single Assets

Abstract

Exogenous liquidity risk measurement is a measurement of liquidity risk that affects all market participants and is not affected by the actions of any other actors. Exogenous liquidity risk measurement is usually called the Cost of Liquidity (COL). The main problem is how the level of liquidity of one currency against other currencies and the effect of liquidity risk on VaR (Value at Risk) on a single asset. This thesis examines the importance of liquidity risk on a single asset. Combining basic VaR and liquidity risk will result in more effective calculations. The model used is to add the basic VaR value with the Cost of Liquidity (COL) or also called Liquidity VaR (L-VaR). The calculation results show the different effects of liquidity for each country's currency. Indonesian Rupiah (IDR) is the currency that has the highest liquidity component compared to the Japanese Yen (JPY) and the Thai Baht (THB). The lower the liquidity component of a currency, the currency is very liquid, and the Japanese Yen (JPY) is the most liquid currency compared to the Indonesian Rupiah (IDR) and the Thai Baht (THB).