Systemic values-at-risk and their sample-average approximations

Wissam AlAli and \c{C}a\u{g}{\i}n Ararat

Papers from arXiv.org

Abstract: This paper investigates the convergence properties of sample-average approximations (SAA) for set-valued systemic risk measures. We assume that the systemic risk measure is defined using a general aggregation function with some continuity properties and value-at-risk applied as a monetary risk measure. We focus on the theoretical convergence of its SAA under Wijsman and Hausdorff topologies for closed sets. After building the general theory, we provide an in-depth study of an important special case where the aggregation function is defined based on the Eisenberg-Noe network model. In this case, we provide mixed-integer programming formulations for calculating the SAA sets via their weighted-sum and norm-minimizing scalarizations. To demonstrate the applicability of our findings, we conduct a comprehensive sensitivity analysis by generating a financial network based on the preferential attachment model and modeling the economic disruptions via a Pareto distribution.

Date: 2024-08
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