Measuring Open-End Funds Liquidity risk Based on Copula

The predicting model of great amounts of redemption (GAR) and large amounts of redemption (LAR) for open-end funds are proposed. According to real situation, the formulas of probability of large amounts of redemption (LAR) are deduced under the three kinds of situations: (1) the amounts of purchasing was determinate and was presented by mean of purchasing; (2) the amounts of redemption and purchasing was independent;(3) the amounts of redemption and purchasing was depended on each other. Especially for the third situation the Archimedean Copula was used to fitting joint probability distribution of amounts of redemption and purchasing and based on this Copula the predicting large amount of accrued parables to redeem open end funds was deduced. Using numerical techniques we compared the results of these three situations. On the basis of the model, the paper combines the current market environment of mutual fund liquidity risk management in China and puts forward the relevant method and some policy advice.