Multivariate Shortfall Risk Allocation and Systemic Risk

Yannick Armenti (), Stéphane Crépey (), Samuel Drapeau and Antonis Papapantoleon
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Yannick Armenti: LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - ENSIIE - Ecole Nationale Supérieure d'Informatique pour l'Industrie et l'Entreprise - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique
Stéphane Crépey: LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - ENSIIE - Ecole Nationale Supérieure d'Informatique pour l'Industrie et l'Entreprise - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique
Samuel Drapeau: Shanghai Jiao Tong University [Shanghai]
Antonis Papapantoleon: TUB - Technical University of Berlin / Technische Universität Berlin

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Abstract: The ongoing concern about systemic risk since the outburst of the global financial crisis has highlighted the need for risk measures at the level of sets of interconnected financial components, such as portfolios, institutions or members of clearing houses. The two main issues in systemic risk measurement are the computation of an overall reserve level and its allocation to the different components according to their systemic relevance. We develop here a pragmatic approach to systemic risk measurement and allocation based on multivariate shortfall risk measures, where acceptable allocations are first computed and then aggregated so as to minimize costs. We analyze the sensitivity of the risk allocations to various factors and highlight its relevance as an indicator of systemic risk. In particular, we study the interplay between the loss function and the dependence structure of the components. Moreover, we address the computational aspects of risk allocation. Finally, we apply this methodology to the allocation of the default fund of a CCP on real data.

Keywords: Systemic risk; risk allocation; multivariate shortfall risk; sensitivities; numerical methods; CCP default fund (search for similar items in EconPapers)
Date: 2018-04-11
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (25)

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