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Measuring systemic risk

Viral Acharya (), Lasse Pedersen, Thomas Philippon () and Matthew Richardson

No 1002, Working Papers (Old Series) from Federal Reserve Bank of Cleveland

Abstract: We present a simple model of systemic risk and show how each financial institution?s contribution to systemic risk can be measured and priced. An institution?s contribution, denoted systemic expected shortfall (SES), is its propensity to be undercapitalized when the system as a whole is undercapitalized, which increases in its leverage, volatility, correlation, and tail-dependence. Institutions internalize their externality if they are ?taxed? based on their SES. Through several examples, we demonstrate empirically the ability of components of SES to predict emerging systemic risk during the nancial crisis of 2007-2009.

Keywords: Risk; Systemic risk (search for similar items in EconPapers)
Date: 2010, Revised 2010
New Economics Papers: this item is included in nep-ban and nep-rmg
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Journal Article: Measuring Systemic Risk (2017) Downloads
Working Paper: Measuring Systemic Risk (2012) Downloads
Working Paper: Measuring systemic risk (2010)
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