Crisis Risk Prediction with Concavity from Polymodel
Raphaël Douady () and
Yao Kuang ()
Additional contact information
Raphaël Douady: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Financial crises is an important research topic because of their impact on the economy, the businesses and the populations. However, prior research tend to show systemic risk measures which are reactive, in the sense that risk surges after the crisis starts. Few of them succeed in predicting financial crises in advance. In this paper, we first introduce a toy model based on a dynamic regime switching process producing normal mixture distributions. We observe that the relative concavity of various indices increases before a crisis. We use this stylized fact to introduce a measure of concavity from nonlinear Polymodel, as a crisis risk indicator, and test it against known crises. We validate the indicator by using it for a trading strategy that holds long or short positions on S&P 500, depending on the indicator value.
Keywords: crisis risk; financial crisis; concavity; Polymodel; trading strategy (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-rmg
Note: View the original document on HAL open archive server: https://hal-paris1.archives-ouvertes.fr/hal-03018481
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
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:hal:cesptp:hal-03018481
Access Statistics for this paper
More papers in Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) from HAL
Bibliographic data for series maintained by CCSD ().