Measuring and Allocating Systemic Risk
Markus K. Brunnermeier
Princeton University - Department of Economics
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, G28working papers series
Date posted: December 29, 2013 ; Last revised: July 26, 2014
© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo6 in 0.391 seconds