Consistent measures of systemic risk

Miguel Segoviano and Raphael Espinoza

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: This paper presents a methodology to infer multivariate densities that characterize the asset values for a system of financial institutions, and applies it to quantify systemic risk. These densities, which are inferred from partial information but are consistent with the observed probabilities of distress of financial institutions, outperform parametric distributions typically employed in risk measurement. The multivariate density approach allows us to propose complementary and statistically consistent metrics of systemic risk, which we estimate using market-based data to analyze the evolution of systemic risk in Europe and the U.S., throughout the financial crisis.

Keywords: density optimization; CIMDO; probabilities of default; financial stability; portfolio credit risk (search for similar items in EconPapers)
JEL-codes: C14 G32 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2017-10-23
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:118947

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