Abstract

http://ssrn.com/abstract=2372472
 
 

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Measuring and Allocating Systemic Risk


Markus K. Brunnermeier


Princeton University - Department of Economics

Patrick Cheridito


Princeton University

July 2014


Abstract:     
This paper develops a framework for measuring, allocating and managing systemic risk. SystRisk, our measure of total systemic risk, captures the a priori cost to society for providing tail-risk insurance to the financial system. Our allocation principle distributes the total systemic risk among individual institutions according to their size-shifted marginal contributions. To describe economic shocks and systemic feedback effects we propose a reduced form stochastic model that can be calibrated to historical data. We also discuss systemic risk limits, systemic risk charges and a cap and trade system for systemic risk.

Number of Pages in PDF File: 22

Keywords: Systemic risk measure, systemic risk allocation, feedback effects, shadow prices, systemic risk limits, systemic risk charges, cap and trade

JEL Classification: G01, G28

working papers series





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Date posted: December 29, 2013 ; Last revised: July 26, 2014

Suggested Citation

Brunnermeier, Markus K. and Cheridito, Patrick, Measuring and Allocating Systemic Risk (July 2014). Available at SSRN: http://ssrn.com/abstract=2372472 or http://dx.doi.org/10.2139/ssrn.2372472

Contact Information

Markus Konrad Brunnermeier
Princeton University - Department of Economics ( email )
Bendheim Center for Finance
Princeton, NJ
United States
609-258-4050 (Phone)
609-258-0771 (Fax)
HOME PAGE: http://www.princeton.edu/¡­markus

Patrick Cheridito (Contact Author)
Princeton University ( email )
ORFE
Princeton University
Princeton, NJ 08544
United States

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