Causal analysis of extreme risk in a network of industry portfolios

Claudia Kl\"uppelberg and Mario Krali

Papers from arXiv.org

Abstract: We provide a comprehensive review of causal dependence through a max-linear structural equation model. Such models express each node variable as a max-linear function of its parental node variables in a directed acyclic graph and some exogenous innovation. We reformulate results on structure learning and estimation, which we apply to a network of financial data. A new method, based on hard-thresholding and on the Hamming distance, estimates a sparse DAG for extreme risk~propagation.

Date: 2025-04, Revised 2025-09
New Economics Papers: this item is included in nep-ecm, nep-net and nep-rmg
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