Tail risk interdependence

Arnold Polanski (), Evarist Stoja () and Ching-Wai (Jeremy) Chiu ()
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Arnold Polanski: University of East Anglia
Evarist Stoja: University of Bristol
Ching-Wai (Jeremy) Chiu: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 815, Bank of England working papers from Bank of England

Abstract: We present a framework focused on the interdependence of high-dimensional tail events. This framework allows us to analyse and quantify tail interdependence at different levels of extremity, decompose it into systemic and residual part and to measure the contribution of a constituent to the interdependence of a system. In particular, tail interdependence can capture simultaneous distress of the constituents of a (financial or economic) system and measure its systemic risk. We investigate systemic distress in several financial datasets confirming some known stylized facts and discovering some new findings. Further, we devise statistical tests of interdependence in the tails and outline some additional extensions.

Keywords: Co-exceedance; systemic distress; risk contribution; extreme risk interdependence (search for similar items in EconPapers)
JEL-codes: C32 G01 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2019-08-05
New Economics Papers: this item is included in nep-ban, nep-cba, nep-ecm and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0815

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