AG 1, AG 2, AG 3, AG 4, AG 5, RG1, SWS, MMCI   Info

AG Audience

English

30 Minutes

Saarbrücken

The measurement of financial risk relies on two factors: determination of riskiness by use of an appropriate risk measure; and the distribution according to which returns are governed. Wrong estimates of either, severely compromise the accuracy of computed risk. We identify the too-big-to-fail banks with the set of “Global Systemically Important Banks” (G-SIBs) and analyze the equity risk of its equally weighted portfolio by means of the “Foster-Hart risk measure” — a new, reserve based measure of risk, extremely sensitive to tail

events. We model banks’ stock returns as an ARMA-GARCH process with multivariate “Normal Tempered Stable” innovations, to capture the skewed and leptokurtotic nature of stock returns. Our union of the Foster-Hart risk modeling with fat-tailed statistical modeling bears fruit, as we are able to measure the equity risk posed by the G-SIBs more accurately than is possible with current techniques.

Mayank Goswami

--email hidden

passcode not visible

logged in users only