Systemic risk in European financial and energy sectors: Dynamic factor copula approach

Matěj Nevrla

Economic Systems, 2020, vol. 44, issue 4

Abstract: We perform an analysis of systemic risk in financial and energy sectors in Europe using daily time series of CDS spreads. We employ the factor copula model with GAS dynamics from Oh and Patton (2018) for the purpose of estimating dependency structures between market participants. Based on the estimated models, we perform Monte Carlo simulations to obtain future values of CDS spreads, and then measure the probability of systemic events at given time points. We conclude that substantially higher systemic risk is present in the financial sector compared to the energy sector. We also find that the most systemically vulnerable financial and energy companies come from Spain.

Keywords: Credit default swap; Energy sector; Factor copula; Financial sector; Generalized autoregressive score model; Systemic risk (search for similar items in EconPapers)
JEL-codes: C53 C55 C58 G17 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:44:y:2020:i:4:s0939362518304904

DOI: 10.1016/j.ecosys.2020.100820

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