Tactical Risk Analysis in Emerging Markets in the Wake of the Credit Crunch and Ensuing Sub-prime Financial Crisis

The purpose of this chapter is to fill a gap in contemporary risk management literature and especially from the perspective of emerging markets in light of the aftermaths of the most recent sub-prime global financial crisis. This chapter develops a rigorous approach for the assessment of risk exposure under extreme conditions. This approach is based on the renowned concept of Liquidity-Adjusted Value-at-Risk (LVaR) along with the innovation of a systematic optimization risk algorithm. In order to underline the appropriate applications of parametric LVaR method, coherent assessments of risk parameters along with the optimization of maximum LVaR boundary limits are presented for the Gulf Cooperation Council (GCC) financial markets. The modeling techniques can aid financial institutions, regulatory authorities, and policymakers in the establishment of clear-cut simulation algorithms to assess risk exposure particularly in the wake of the latest credit crunch and ensuing sub-prime global financial crisis.