Measuring and Allocating Systemic Risk

TitleMeasuring and Allocating Systemic Risk
Publication TypeJournal Article
Year of Publication2019
AuthorsBrunnermeier MK, Cheridito P
JournalRisks
Volume7
Pagination46
Date Publishedapr
ISSN2227-9091
AbstractIn this paper, we develop a framework for measuring, allocating and managing systemic risk. SystRisk, our measure of total systemic risk, captures the a priori cost to society for providing tail-risk insurance to the financial system. Our allocation principle distributes the total systemic risk among individual institutions according to their size-shifted marginal contributions. To describe economic shocks and systemic feedback effects, we propose a reduced form stochastic model that can be calibrated to historical data. We also discuss systemic risk limits, systemic risk charges and a cap and trade system for systemic risk.
URLhttps://www.mdpi.com/2227-9091/7/2/46
DOI10.3390/risks7020046