Modifying (M)CoVaR and constructing tail risk networks through analytic higher-order moments: Evidence from the global forex markets

ABSTRACT: In a financial system, entities (e.g., companies or markets) face systemic risk that could lead to financial instability. To prevent this impact, we require quantitative systemic risk management we can carry out using conditional value-at-risk (CoVaR) and a network model. The former measures any targeted entity’s tail risk conditional on another entity being financially distressed; the latter represents the financial system through a set of nodes and a set of edges. In this study, we modify CoVaR along with its multivariate extension (MCoVaR) considering the joint conditioning events of multiple entities. We accomplish this by first employing a multivariate Johnson’s SU risk model to capture the asymmetry and leptokurticity of the entities’ asset returns. We then adopt the Cornish–Fisher e

SUBMITTER: Hakim A 

PROVIDER: S-EPMC9707806 | biostudies-literature | 2022 Jan

REPOSITORIES: biostudies-literature