Tail risk interdependence

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 02 August 2019

Staff Working Paper No. 815

By Arnold Polanski, Evarist Stoja and Ching-Wai (Jeremy) Chiu

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.

PDFTail risk interdependence

This is an online appendix to Staff Working Paper No. 815.

PDFAppendix to Tail Risk Interdependence

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