Extreme risk interdependence

Arnold Polanski, Evarist Stoja

Research output: Working paperDiscussion paper

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Abstract

We define tail interdependence as a situation where extreme outcomes for some variables are informative about such outcomes for other variables. We extend the concept of multiinformation to quantify tail interdependence, decompose it into systemic and residual interdependence and measure the contribution of a constituent to the interdependence of a system. Further, we devise statistical procedures to test: a) tail independence, b) whether an empirical interdependence structure is generated by a theoretical model and c) symmetry of the interdependence structure in the tails. We outline some additional extensions and illustrate this framework by applying it to several datasets.
Original languageEnglish
Place of PublicationFrankfurt am Main
PublisherEuropean Systemic Risk Board
Number of pages37
VolumeNo 12
ISBN (Electronic)978-92-95081-39-0
DOIs
Publication statusPublished - Jun 2016

Publication series

NameESRB Working Paper Series
PublisherEuropean Systemic Risk Board
No.12

Keywords

  • co-exceedance
  • Kullback-Leibler divergence
  • multi-information
  • relative entropy
  • risk contribution
  • risk interdependence

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