Measuring liquidity risk of open-end funds by generalized pareto distributions

Generalized Pareto distribution (GPD) has been the best distribution to fit excesses over a given high threshold In this paper we use it to measuring liquidity risk of open-end funds under the circumstances of accrued payables being shortfall for redemption We develop a risk model that helps compute the expected shortfall. The parameters of the GPD can be estimated by maximum likelihood. Using numerical techniques we could predict the amount of redemption under the conditions of a certain probability and enable the fund management to reserve a certain amount of cash in accordance to the probability already predicted In conclusion a new reasonable way to keep away from the liquidity risk is provided to the fund management.