Tail risk interdependence

Arnold Polanski, Evarist Stoja, Ching-Wai Chiu

Research output: Contribution to journalArticlepeer-review

Abstract

We present a framework focused on the interdependence of high-dimensional tail events. This framework allows us to analyse and quantify tail interdependence at different levels of extremity, decompose it into systemic and residual part and to measure the contribution of a constituent to the interdependence of a system. In particular, tail interdependence can capture simultaneous distress of the constituents of a (financial or economic) system and measure its systemic risk. We investigate systemic distress in several financial datasets confirming some known stylized facts and discovering some new findings. Further, we devise statistical tests of interdependence in the tails and outline some additional extensions.
Original languageEnglish
Pages (from-to)5499-5511
Number of pages13
JournalInternational Journal of Finance & Economics
Volume26
Issue number4
Early online date1 Sep 2020
DOIs
Publication statusPublished - 12 Oct 2021

Keywords

  • co-exceedance
  • risk interdependence
  • relative entropy
  • risk contribution
  • systemic risk

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