Related papers: Measures of Systemic Risk
Volatility is the canonical measure of financial risk, a role largely inherited from Modern Portfolio Theory. Yet, its universality rests on restrictive efficiency assumptions that render volatility, at best, an incomplete proxy for true…
This study introduces a new analytical framework for quantifying multivariate risk measures. Using the Wishart process, which is a stochastic process with values in the space of positive definite matrices, we derive several conditional tail…
This paper develops a safety analysis method for stochastic systems that is sensitive to the possibility and severity of rare harmful outcomes. We define risk-sensitive safe sets as sub-level sets of the solution to a non-standard optimal…
Providing a measure of market risk is an important issue for investors and financial institutions. However, the existing models for this purpose are per definition symmetric. The current paper introduces an asymmetric capital asset pricing…
The purpose of this research article is to discover how the econophysics analysis can complement the econometrics models in application to the risk management in the central banks and financial institutions, operating within the nonlinear…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
Risks threatening modern societies form an intricately interconnected network that often underlies crisis situations. Yet, little is known about how risk materializations in distinct domains influence each other. Here we present an approach…
The family of admissible positions in a transaction costs model is a random closed set, which is convex in case of proportional transaction costs. However, the convexity fails, e.g. in case of fixed transaction costs or when only a finite…
On March 4th 2016 the Basel Committee on Banking Supervision published a consultative document where a new methodology, called the Standardized Measurement Approach (SMA), is introduced for computing Operational Risk regulatory capital for…
In this paper, we develop a novel unified methodology for performance and robustness analysis of linear dynamical networks. We introduce the notion of systemic measures for the class of first--order linear consensus networks. We classify…
This paper studies a risk-sensitive decision-making problem under uncertainty. It considers a decision-making process that unfolds over a fixed number of stages, in which a decision-maker chooses among multiple alternatives, some of which…
We introduce a decision-making framework tailored for the management of systemic risk in networks. This framework is constructed upon three fundamental components: (1) a set of acceptable network configurations, (2) a set of interventions…
We provide a framework for detecting relevant insurance companies in a systemic risk perspective. Among the alternative methodologies for measuring systemic risk, we propose a complex network approach where insurers are linked to form a…
Power systems are getting more complex than ever and are consequently operating close to their limit of stability. Moreover, with the increasing demand of renewable wind generation, and the requirement to maintain a secure power system, the…
Artificial intelligence risks are multidimensional in nature, as the same risk scenarios may have legal, operational, and financial risk dimensions. With the emergence of new AI regulations, the state of the art of artificial intelligence…
Cloud systems are dynamic environments which make it difficult to keep track of security risks that resources are exposed to. Traditionally, risk assessment is conducted for individual assets to evaluate existing threats; their results,…
A new procedure is presented for the objective comparison and evaluation of default definitions. This allows the lender to find a default threshold at which the financial loss of a loan portfolio is minimised, in accordance with Basel II.…
For controlled discrete-time stochastic processes we introduce a new class of dynamic risk measures, which we call process-based. Their main features are that they measure risk of processes that are functions of the history of a base…
We establish dual representations for systemic risk measures based on acceptance sets in a general setting. We deal with systemic risk measures of both "first allocate, then aggregate" and "first aggregate, then allocate" type. In both…
Credit risk stress testing has become an important risk management device which is used both by banks internally and by regulators. Stress testing is complex because it essentially means projecting a bank's full balance sheet conditional on…