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Market-Implied Systemic Risk and Shadow Capital Adequacy
| Content Provider | Scilit |
|---|---|
| Author | Chatterjee, Somnath Jobst, Andreas (Andy) |
| Copyright Year | 2019 |
| Description | Journal: Ssrn Electronic Journal This paper presents a forward-looking approach to measure systemic solvency risk using contingent claims analysis (CCA) as a theoretical foundation for determining an institution’s default risk based on the uncertainty in its asset value relative to promised debt payments over time. Default risk can be quantified as market-implied expected losses calculated from integrating equity market and balance sheet information in a structural default risk model. The expected losses of multiple banks and their non-parametric dependence structure define a multivariate distribution that generates portfolio-based estimates of the joint default risk using the aggregation technique of the Systemic CCA framework (Jobst and Gray, 2013). This market-implied valuation approach (‘shadow capital adequacy’) endogenises bank solvency as a probabilistic concept based on the perceived default risk (in contrast to accounting-based prudential measures of capital adequacy). The presented model adds to the literature of analytical tools estimating market-implied systemic risk by augmenting the CCA approach with a jump diffusion process of asset changes to inform a more comprehensive and flexible assessment of common vulnerabilities to tail risks of the four largest UK commercial banks. |
| Related Links | https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2019/market-implied-systemic-risk-and-shadow-capital-adequacy.pdf https://papers.ssrn.com/sol3/Delivery.cfm?abstractid=3454784 |
| ISSN | 10914358 |
| e-ISSN | 15565068 |
| DOI | 10.2139/ssrn.3454784 |
| Journal | Ssrn Electronic Journal |
| Language | English |
| Publisher | Elsevier BV |
| Publisher Date | 2019-09-13 |
| Access Restriction | Open |
| Subject Keyword | Journal: Ssrn Electronic Journal Systemic Risk Contingent Claims Analysis Jump Diffusion Systemic Expected Shortfall Conditional Tail Expectation Capital Adequacy |
| Content Type | Text |
| Resource Type | Article |
| Subject | Public Health, Environmental and Occupational Health Psychiatry and Mental Health |
