Introducing 'liquidity VaR' and other post-crisis notions

The 2007-08 financial crisis upended some of the conventional wisdom about investing. Pension funds, insurance companies and other long-term investors were taught that the best way to mitigate risk was to diversify, stick to long-term allocations and rebalance automatically. Risk was measured as tracking error against a benchmark, and absolute exposure was tallied as 'value at risk' (VaR), packaged in one nice, neat, single number. The shock of the market dive in late 2008 and early 2…