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Tail risk interdependence

Author

Listed:
  • Polanski, Arnold

    (University of East Anglia)

  • Stoja, Evarist

    (University of Bristol)

  • Chiu, Ching-Wai (Jeremy)

    (Bank of England)

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.

Suggested Citation

  • Polanski, Arnold & Stoja, Evarist & Chiu, Ching-Wai (Jeremy), 2019. "Tail risk interdependence," Bank of England working papers 815, Bank of England.
    • Handle: RePEc:boe:boeewp:0815
    as

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    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/tail-risk-interdependence.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Co-exceedance; systemic distress; risk contribution; extreme risk interdependence;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G01 - Financial Economics - - General - - - Financial Crises

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