The multivariate nature of systemic risk: direct and common exposures

Paolo Giudici, Peter Sarlin () and Alessandro Spelta ()
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Peter Sarlin: Hanken School of Economics
Alessandro Spelta: Department of Economics and Finance, Catholic University Milan

No 118, DEM Working Papers Series from University of Pavia, Department of Economics and Management

Abstract: To capture systemic risk related to network structures, this paper introduces a measure that complements direct exposures with common exposures, as well as compares these to each other. Trying to address the interconnected nature of financial systems, researchers have recently proposed a range of approaches for assessing network structures. Much of the focus is on direct exposures or market-based estimated networks, yet little attention has been given to the multivariate nature of systemic risk, indirect exposures and overlapping portfolios. In this regard, we rely on correlation network models that tap into the multivariate network structure, as a viable means to assess common exposures and complement direct linkages. Using BIS data, we compare correlation networks with direct exposure networks based upon conventional network measures, as well as we provide an approach to aggregate these two components for a more encompassing measure of interconnectedness.

Keywords: Bank of International Settlements data; Correlation networks; Exposure networks (search for similar items in EconPapers)
JEL-codes: C58 C63 G01 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2016-03
New Economics Papers: this item is included in nep-cba, nep-hme, nep-net and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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