A Tail Dependence-Based MST and Their Topological Indicators in Modeling Systemic Risk in the European Insurance Sector

Anna Denkowska and Stanisław Wanat ()
Additional contact information
Anna Denkowska: Department of Mathematics, Cracow University of Economics, Rakowicka 27, 31-510 Cracow, Poland

Risks, 2020, vol. 8, issue 2, 1-22

Abstract: In the present work, we analyze the dynamics of indirect connections between insurance companies that result from market price channels. In our analysis, we assume that the stock quotations of insurance companies reflect market sentiments, which constitute a very important systemic risk factor. Interlinkages between insurers and their dynamics have a direct impact on systemic risk contagion in the insurance sector. Herein, we propose a new hybrid approach to the analysis of interlinkages dynamics based on combining the copula-DCC-GARCH model and minimum spanning trees (MST). Using the copula-DCC-GARCH model, we determine the tail dependence coefficients. Then, for each analyzed period we construct MST based on these coefficients. The dynamics are analyzed by means of the time series of selected topological indicators of the MSTs in the years 2005–2019. The contribution to systemic risk of each institution is determined by analyzing the deltaCoVaR time series using the copula-DCC-GARCH model. Our empirical results show the usefulness of the proposed approach to the analysis of systemic risk (SR) in the insurance sector. The times series obtained from the proposed hybrid approach reflect the phenomena occurring in the market. We check whether the analyzed MST topological indicators can be considered as systemic risk predictors.

Keywords: insurance sector; systemic risk; deltaCoVaR; minimum spanning trees—topological indicators; tail dependence (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.mdpi.com/2227-9091/8/2/39/pdf (application/pdf)
https://www.mdpi.com/2227-9091/8/2/39/ (text/html)

Related works:
Working Paper: A tail dependence-based MST and their topological indicators in modelling systemic risk in the European insurance sector (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jrisks:v:8:y:2020:i:2:p:39-:d:348740

Access Statistics for this article

Risks is currently edited by Mr. Claude Zhang

More articles in Risks from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().