easy · Frm Part 2 Liquidity & Treasury Risk
In the LVaR formula for a linear unwind over n days (LVaR = VaR_1d × √(((n+1)(2n+1))/(6n))), what does the factor account for?
- The correlation between different assets in the portfolio
- The widening of the bid-ask spread during a crisis
- The risk reduction earned by shrinking the position size daily along the liquidation path
- The increase in market volatility over time
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