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Conditional Copula Simulation for Systemic Risk Stress Testing
Year Of Publication: 2013
Month Of Publication: March
Pages: 20
Download Count: 7
View Count: 1231
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 3-27-2013
Publisher: Administrator
Summary
A major determinant of systemic risk is the interconnectedness of the international nancial market. We propose to analyze interdependencies in the financial market using copulas, in particular using flexible vine copulas, which overcome limitations of the popular elliptical and Archimedean copulas. To investigate contagion e ects among financial institutions, we develop methods for stress testing by exploiting the underlying dependence structure. New approaches for Archimedean and, especially, for vine copulas are derived. In a case study of 38 major international institutions, 20 insurers and 18 banks, we then analyze interdependencies of CDS spreads and perform a systemic risk stress test. The specified dependence model and the results from the stress test provide new insights into the interconnectedness of banks and insurers.
This document is published in Insurance: Mathematics and Economics (2013), http://dx.doi.org/10.1016/j.insmatheco.2013.09.009
Author(s)
Brechmann, Elke C. Sign in to follow this author
Czado, Claudia Sign in to follow this author
Hendrich, Katharina Sign in to follow this author
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