Systemic Risk, Stress Testing, and Financial Contagion

2013 ◽  
pp. 181-210 ◽  
Author(s):  
Serafin Martinez-Jaramillo ◽  
Calixto Lopez-Castañon ◽  
Fabrizio Lopez-Gallo
Keyword(s):  
Systemic Risk ◽  
Stress Testing ◽  
Risk Measures ◽  
Banking System ◽  
Financial Contagion ◽  
Coherent Risk Measures ◽  
Interbank Market ◽  
Coherent Risk

By using the proposed framework, it is also possible to perform stress testing in a coherent way, including second round effects like contagion through the interbank market. Additionally, it is possible to follow the evolution of certain coherent risk measures, like the CVaR, in order to evaluate if the system is becoming more or less risky, in fact, more or less fragile. Additionally, the authors decompose the distribution of losses of the whole banking system into the systemic and the contagion elements and determine if the system is more prone to experience contagious difficulties during a certain period of time.

Systemic Risk, Stress Testing, and Financial Contagion

2014 ◽  
pp. 282-310
Author(s):  
Calixto Lopez-Castañon ◽  
Serafin Martinez-Jaramillo ◽  
Fabrizio Lopez-Gallo
Keyword(s):  
Systemic Risk ◽  
Research Agenda ◽  
Stress Testing ◽  
Risk Measures ◽  
Banking System ◽  
Financial Contagion ◽  
Interbank Market ◽  
Coherent Risk ◽  
Central Bankers ◽  
Standard Risk

Despite the acknowledgment of the relevance of Systemic Risk, there is a lack of consensus on its definition and, more importantly, on the way it should be measured. Fortunately, there is a growing research agenda and more financial regulators, central bankers, and academics have recently been focusing on this field. In this chapter, the authors obtain a distribution of losses for the banking system as a whole. They are convinced that such distribution of losses is the key element that could be used to develop relevant measures for systemic risk. Their model contemplates several aspects, which they consider important regarding the concept of systemic risk: an initial macroeconomic shock, which weakens some institutions (some of them to the point of failure), a contagion process by means of the interbank market, and the resulting losses to the financial system as a whole. Finally, once the distribution is estimated, the authors derive standard risk measures for the system as a whole, focusing on the tail of the distribution (where the catastrophic or systemic events are located). By using the proposed framework, it is also possible to perform stress testing in a coherent way, including second round effects like contagion through the interbank market. Additionally, it is possible to follow the evolution of certain coherent risk measures, like the CVaR, in order to evaluate if the system is becoming more or less risky, in fact, more or less fragile. Additionally, the authors decompose the distribution of losses of the whole banking system into the systemic and the contagion elements and determine if the system is more prone to experience contagious difficulties during a certain period of time.

COHERENT PORTFOLIO SEPARATION — INHERENT SYSTEMIC RISK?

2004 ◽  
Vol 07 (07) ◽  
pp. 909-917 ◽  
Author(s):  
NILS CHR. FRAMSTAD
Keyword(s):  
Systemic Risk ◽  
Risk Model ◽  
Risk Measures ◽  
Market Risk ◽  
Separation Property ◽  
Coherent Risk Measures ◽  
Financial Industry ◽  
Coherent Risk ◽  
Quantifying Risk

A stylized market risk model is studied. It turns out that quantifying risk by quantile-VaR, coherent risk measures or other functionals that are positively homogeneous, has a consequence akin to assuming multi-normal returns, namely a two fund separation property. Heuristic arguments indicate that this may be a source of systemic risk to the financial industry.

scholarly journals Restricted Coherent Risk Measures and Actuarial Solvency

2012 ◽  
Vol 2012 ◽  
pp. 1-18
Author(s):  
Christos E. Kountzakis
Keyword(s):  
Minimization Problem ◽  
Risk Measures ◽  
Insurance Company ◽  
Coherent Risk Measures ◽  
Dual Representation ◽  
Coherent Risk ◽  
Representation Form ◽  
Solvency Capital

We prove a general dual representation form for restricted coherent risk measures, and we apply it to a minimization problem of the required solvency capital for an insurance company.

scholarly journals Rearrangement Invariant, Coherent Risk Measures on L<sup>0</sup>

2015 ◽  
Vol 04 (01) ◽  
pp. 22-25
Author(s):  
Christos E. Kountzakis ◽  
Dimitrios G. Konstantinides
Keyword(s):  
Risk Measures ◽  
Coherent Risk Measures ◽  
Coherent Risk
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