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Measures of Systemic Risk

Presented by: 
S Weber Leibniz Universität Hannover
Wednesday 5th November 2014 - 14:00 to 15:00
INI Seminar Room 2
The talk proposes a novel approach to measuring systemic risk. Key to our construction is the philosophy that there is no distinction between risk and capital requirements, as recently described in Artzner, Delbaen & Koch-Medina (2009). Such an approach is ideal for regulatory purposes. The suggested systemic risk measures express systemic risk in terms of capital endowments of the financial firms. These endowments constitute the eligible assets of the procedure. Acceptability is defined in terms of cash flows to the entire society and specified by a standard acceptance set of an arbitrary scalar risk measure. Random cash flows can be derived conditional on the capital endowments of the firms within a large class of models of financial systems. These may include both local and global interaction. The resulting systemic risk measures are set-valued and allow a mathematical analysis on the basis of set-valued convex analysis. We explain the conceptual framework and the definition of systemic risk measures, and provide an algorithm for their computation. The application of these risk measures is ilustrated in numerical case studies in the third talk.
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University of Cambridge Research Councils UK
    Clay Mathematics Institute London Mathematical Society NM Rothschild and Sons