Tail Risk Interdependence

28 Pages Posted: 6 Aug 2019 Last revised: 12 Jul 2023

See all articles by Arnold Polanski

Arnold Polanski

University of East Anglia

Evarist Stoja

University of Bristol

Ching-Wai (Jeremy) Chiu

Bank of England

Multiple version iconThere are 2 versions of this paper

Date Written: August 2, 2019

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.

Keywords: co-exceedance, systemic distress, risk contribution, extreme risk interdependence

JEL Classification: C32, G1

Suggested Citation

Polanski, Arnold and Stoja, Evarist and Chiu, Ching-Wai (Jeremy), Tail Risk Interdependence (August 2, 2019). Bank of England Working Paper No. 815, August 2019, Available at SSRN: https://ssrn.com/abstract=3432364 or http://dx.doi.org/10.2139/ssrn.3432364

Arnold Polanski

University of East Anglia ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom
44 (0)1603 59 7166 (Phone)

HOME PAGE: http://https://www.uea.ac.uk/eco/people/All+People/Academic/Arnold+Polanski

Evarist Stoja

University of Bristol ( email )

School of Accounting and Finance
8 Woodland Road
Bristol, BS8 1TN
United Kingdom

HOME PAGE: http://sites.google.com/view/evarist-stoja/

Ching-Wai (Jeremy) Chiu (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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