Measuring and Allocating Systemic Risk
23 Pages Posted: 29 Dec 2013 Last revised: 23 Apr 2019
Date Written: April 1, 2019
Abstract
In this paper we develop 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.
Keywords: Systemic risk measure, systemic risk allocation, feedback effects, shadow prices, systemic risk limits, systemic risk charges, cap and trade
JEL Classification: G01, G28
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Macroeconomic Analysis Without the Rational Expectations Hypothesis