Extreme risk interdependence

Arnold Polanski and Evarist Stoja

No 12, ESRB Working Paper Series from European Systemic Risk Board

Abstract: We define tail interdependence as a situation where extreme outcomes for some variables are informative about such outcomes for other variables. We extend the concept of multiinformation to quantify tail interdependence, decompose it into systemic and residual interdependence and measure the contribution of a constituent to the interdependence of a system. Further, we devise statistical procedures to test: a) tail independence, b) whether an empirical interdependence structure is generated by a theoretical model and c) symmetry of the interdependence structure in the tails. We outline some additional extensions and illustrate this framework by applying it to several datasets. JEL Classification: C12, C14, C52

Keywords: co-exceedance; Kullback-Leibler divergence; multi-information; relative entropy; risk contribution; risk interdependence (search for similar items in EconPapers)
Date: 2016-06
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Persistent link: https://EconPapers.repec.org/RePEc:srk:srkwps:201612

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