Systemic risk allocation using the asymptotic marginal expected shortfall

Xiao Qin and Chen Zhou ()

Journal of Banking & Finance, 2021, vol. 126, issue C

Abstract: This paper defines asymptotic marginal expected shortfall (AMES) for banks within a financial system and provides corresponding estimation method based on multivariate extreme value theory. The estimation method does not assume a specific dependence structure among bank equity returns. Both theoretical AMES and the estimator possess additive property and thus can serve as a tool to allocate system-wide risk to individual institutions. We apply the AMES to 30 global systemically important financial institutions (G-SIFIs). We show that the AMES outperforms the MES in predicting extreme losses during extreme systemic events. By taking the AMES as the reference point for allocating systemic risk to individual institutions, we show that an allocation according to simple bank characteristics such as size and individual risk can be imperfect. The allocation unfairness of individual risk or size across all the G-SIFIs has increased since 2008.

Keywords: Asymptotic marginal expected shortfall; Systemically important financial institutions; Multivariate extreme value theory (search for similar items in EconPapers)
JEL-codes: C14 G21 G32 (search for similar items in EconPapers)
Date: 2021
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:jbfina:v:126:y:2021:i:c:s0378426621000571

DOI: 10.1016/j.jbankfin.2021.106099

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