The equity risk posed by the too-big-to-fail banks: a Foster–Hart estimation
Abhinav Anand (),
Tiantian Li (),
Tetsuo Kurosaki () and
Young Shin Kim ()
Additional contact information
Tiantian Li: SUNY Stony Brook
Tetsuo Kurosaki: Bank of Japan
Young Shin Kim: SUNY Stony Brook
Annals of Operations Research, 2017, vol. 253, issue 1, No 2, 41 pages
Abstract The measurement of financial risk relies on two factors: determination of riskiness by use of an appropriate risk measure; and the distribution according to which returns are governed. Wrong estimates of either, severely compromise the accuracy of computed risk. We identify the too-big-to-fail banks with the set of “Global Systemically Important Banks” (G-SIBs) and analyze the equity risk of its equally weighted portfolio by means of the “Foster–Hart risk measure”—a bankruptcy-proof, reserve based measure of risk, extremely sensitive to tail events. We model banks’ stock returns as an ARMA–GARCH process with multivariate “Normal Tempered Stable” innovations, to capture the skewed and leptokurtotic nature of stock returns. Our union of the Foster–Hart risk modeling with fat-tailed statistical modeling bears fruit, as we are able to measure the equity risk posed by the G-SIBs more accurately than is possible with current techniques.
Keywords: Financial risk; Normal Tempered Stable distribution; Foster–Hart risk; Value-at-Risk (VaR); Average Value-at-Risk (AVaR) (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
http://link.springer.com/10.1007/s10479-016-2309-y Abstract (text/html)
Access to the full text of the articles in this series is restricted.
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:spr:annopr:v:253:y:2017:i:1:d:10.1007_s10479-016-2309-y
Ordering information: This journal article can be ordered from
Access Statistics for this article
Annals of Operations Research is currently edited by Endre Boros
More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().