Options-Based Systemic Risk, Financial Distress, and Macroeconomic Downturns

2020 ◽  
Author(s):  
Mattia Bevilacqua ◽  
Radu Tunaru ◽  
Davide Vioto
Keyword(s):  
Systemic Risk ◽  
Financial Distress

scholarly journals Macroprudential Policy in a Heterogeneous Environment—An Application of Agent-Based Approach in Systemic Risk Modelling

Entropy ◽  
2020 ◽  
Vol 22 (2) ◽  
pp. 129
Author(s):  
Jagoda Kaszowska-Mojsa ◽  
Mateusz Pipień
Keyword(s):  
Systemic Risk ◽  
Financial Distress ◽  
Dynamic Stochastic General Equilibrium ◽  
Macroprudential Policy ◽  
Risk Modelling ◽  
Agent Based ◽  
Macroprudential Policies ◽  
Dynamic Stochastic ◽  
Rbc Models ◽  
The Impact

Assessment of welfare effects of macroprudential policy seems the most important application of the Dynamic Stochastic General Equilibrium (DSGE) framework of macro-modelling. In particular, the DSGE-3D model, with three layers of default (3D), was developed and used by the European Systemic Risk Board and European Central Bank as a reference tool to formally model the financial cycle as well as to analyze effects of macroprudential policies. Despite the extreme importance of incorporating financial constraints in Real Business Cycle (RBC) models, the resulting DSGE-3D construct still embraces the representative agent idea, making serious analyses of diversity of economic entities impossible. In this paper, we present an alternative to DSGE modelling that seriously departs from the assumption of the representativeness of agents. Within an Agent Based Modelling (ABM) framework, we build an environment suitable for performing counterfactual simulations of the impact of macroprudential policy on the economy, financial system and society. We contribute to the existing literature by presenting an ABM model with broad insight into heterogeneity of agents. We show the stabilizing effects of macroprudential policies in the case of economic or financial distress.

scholarly journals SYSTEMIC RISK: AN ASYMPTOTIC EVALUATION

2017 ◽  
Vol 48 (02) ◽  
pp. 673-698 ◽  
Author(s):  
Alexandru V. Asimit ◽  
Jinzhu Li
Keyword(s):  
Systemic Risk ◽  
Financial Distress ◽  
Mathematical Formulation ◽  
Tail Dependence ◽  
Value Theory ◽  
Asymptotic Independence ◽  
Regulatory Capital ◽  
Asymptotic Dependence ◽  
Asymptotic Evaluation ◽  
Mathematical Definitions

AbstractSystemic risk (SR) has been shown to play an important role in explaining the financial turmoils in the last several decades and understanding this source of risk has been a particular interest amongst academics, practitioners and regulators. The precise mathematical formulation of SR is still scrutinised, but the main purpose is to evaluate the financial distress of a system as a result of the failure of one component of the financial system in question. Many of the mathematical definitions of SR are based on evaluating expectations in extreme regions and therefore, Extreme Value Theory (EVT) represents the key ingredient in producing valuable estimates of SR and even its decomposition per individual components of the entire system. Without doubt, the prescribed dependence model amongst the system components has a major impact over our asymptotic approximations. Thus, this paper considers various well-known dependence models in the EVT literature that allow us to generate SR estimates. Our findings reveal that SR has a significant impact under asymptotic dependence, while weak tail dependence, known as asymptotic independence, produces an insignificant loss over the regulatory capital.

scholarly journals Implementing the countercyclical capital buffer in South Africa: Practical considerations

2015 ◽  
Vol 18 (1) ◽  
pp. 105-127 ◽  
Author(s):  
Pravin Burra ◽  
Pieter Juriaan De Jongh ◽  
Helgard Raubenheimer ◽  
Gary Van Vuuren ◽  
Henco Wiid
Keyword(s):  
South African ◽  
Systemic Risk ◽  
Financial Distress ◽  
Banking System ◽  
Capital Requirements ◽  
Critical Discussion ◽  
Basel Iii ◽  
Risk Indicator ◽  
Bank Capital ◽  
Minimum Capital

The Basel II regulatory framework significantly increased the resilience of the banking system, but proved ineffective in preventing the 2008/9 financial crisis. The subsequent introduction of Basel III aimed, inter alia, to supplement bank capital using buffers. The countercyclical buffer boosts existing minimum capital requirements when systemic risk surges are detected. Bolstering capital in favourable economic conditions cushions losses in unfavourable conditions, thereby addressing capital requirement procyclicality. This paper contains an overview of the countercyclical capital buffer and a critical discussion of its implementation as proposed in Basel III. Consequences of the buffer's introduction for South African banks are explored, and in particular, potential systemic risk indicator variables are identified that may be used by the South African Reserve Bank (SARB) as early warning indicators of imminent systemic financial distress. These indicators may be of value to the SARB, which could use them in taking decisions on the build-up and release of the countercyclical buffer for South African banks.

scholarly journals Medidas de Risco e Matriz de Contágio: uma Aplicação do CoVaR para o Mercado Financeiro Brasileiro

2012 ◽  
Vol 10 (4) ◽  
pp. 551
Author(s):  
Aléssio Tony Cavalcanti de Almeida ◽  
Bruno Ferreira Frascaroli ◽  
Danilo Regis da Cunha
Keyword(s):  
Systemic Risk ◽  
Financial Distress ◽  
Value At Risk ◽  
Stress Test ◽  
Spillover Effects ◽  
Domestic Market ◽  
Contagion Effect ◽  
Market Returns ◽  
Domestic Capital ◽  
Risk Measurements

The main point of this work is to assess how a financial distress in return series of the major Brazilian companies assets and relevant domestic market (Ibovespa) and main international index (Dow Jones) interact with each other, in an attempt to capture spillover effects. We try to capture the systemic risk, the contagion effect and the stress test. This paper uses the methodology CoVaR, described in the Adrian and Brunnermeier (2011) which use quantile regression. The main innovation of this work is the construction and estimation of the contagion matrix to domestic capital market. The results show that there is no relationship between risk measurements given by Value at Risk (VaR) and CoVaR, moreover the systemic risk shows those assets that generate more negative externalities for the domestic financial market. The stress test indicates that a distress in domestic market indicator returns have more spillover effects on domestic papers than a distress in the international market returns. Finally, the contagion matrix reveals that the interrelationships of contagion between the firms’ returns are relevant sectorial evidence for assessment and management of risks.

Risk and capital in Indonesian large banks

2018 ◽  
Vol 10 (1) ◽  
pp. 165-184 ◽  
Author(s):  
Arisyi Fariza Raz
Keyword(s):  
Systemic Risk ◽  
Financial Distress ◽  
Banking Sector ◽  
Risk Measures ◽  
Bank Risk ◽  
Policy Debate ◽  
Content Type ◽  
Systemic Risks ◽  
Using Data ◽  
The Impact

Purpose The purpose of this paper is to examine the behavior of banking risk in the emerging economies, particularly Indonesia and contribute to the discussion on the existing policy debate regarding the impact of capital on bank risk. Design/methodology/approach This study investigates the relationship between bank risk and capital using data on 15 Indonesian large banks between 2008 and 2015, using z-score and Delta-CoVaR to measure both idiosyncratic and systemic risks. Findings The empirical investigation suggests that capital has a negative and significant relationship with these risk measures. The authors also find that higher systemic risk encourages banks to increase their capital. However, similar evidence is not found in the idiosyncratic risk models. Finally, the role of capital in reducing risk is considered robust only during the normal periods, as banks may increase their assets risk during times of financial distress. Originality/value Systemic risk (CoVaR) is used to represent bank risk. This study focuses on the Indonesian banking sector (capture institutional arrangements and regulatory environment). It covers the period of 2008 GFC and post-crisis period.

scholarly journals Measuring Systemic Risk on the Indonesia’s Banking System

2018 ◽  
Vol 2 (2) ◽  
pp. 94-105
Author(s):  
Alfan Mansur
Keyword(s):  
Systemic Risk ◽  
Financial Distress ◽  
Regime Switching ◽  
Banking System ◽  
Financial System ◽  
Principal Component ◽  
Switching Model ◽  
Causality Tests ◽  
Markov Regime Switching Model ◽  
Systemically Important Banks

Inter-connectedness is one important aspect in measuring the degree of systemic risk arising in the banking system. In this paper, this aspect besides the degree of commonality and volatility are measured using Principal Component Analysis (PCA), dynamic Granger causality tests and a Markov regime switching model. These measures can be used as leading indicators to detect pressures in the financial system, in particular the banking system. There is evidence that the inter-connectedness level together with degree of commonality and volatility among banks escalate substantially during the financial distress. It implies that less systemically important banks could become more important in the financial system during the abnormal times. Therefore, the list of systemically important banks as regulated in the Law on Prevention and Mitigation of Financial System Crisis (UU PPKSK) should be updated more frequently during the period of financial distress.

Macroprudential Policy Instruments of Central Banks

2012 ◽  
pp. 32-47
Author(s):  
S. Andryushin ◽  
V. Kuznetsova
Keyword(s):  
Systemic Risk ◽  
Financial Stability ◽  
Financial System ◽  
Policy Instruments ◽  
Central Banks ◽  
Macroprudential Policy ◽  
Policy Studies ◽  
The Future ◽  
Financial Cycles

The paper analyzes central banks macroprudencial policy and its instruments. The issues of their classification, option, design and adjustment are connected with financial stability of overall financial system and its specific institutions. The macroprudencial instruments effectiveness is evaluated from the two points: how they mitigate temporal and intersectoral systemic risk development (market, credit, and operational). The future macroprudentional policy studies directions are noted to identify the instruments, which can be used to limit the financial systemdevelopment procyclicality, mitigate the credit and financial cycles volatility.

PENGARUH PERPUTARAN PIUTANG DAN SOLVABILITAS TERHADAP KONDISI FINANCIAL DISTRESS PERUSAHAAN MANUFAKTUR SEKTOR GARMEN DAN TEKSTIL DI BURSA EFEK INDONESIA

2018 ◽  
Vol 19 (2) ◽  
pp. 87
Author(s):  
Siska Wulandari
Keyword(s):  
Financial Distress ◽  
Free Market ◽  
Linear Regression Analysis ◽  
Secondary Data ◽  
Multiple Linear Regression Analysis ◽  
Working Capital ◽  
Leverage Ratio ◽  
Ratio Effect ◽  
Waste Bank ◽  
Solvency Ratio

Manufacture Sub Sector Garment And Textile have financial distress condition. Increas of sales is one of choice for company can be competitive in free market. But increase of sales will be followed by the many possibilities of uncollected receivable or the low receivable turnover which can effect forced the company to further provide working capital. One way is to get working capital from a third part or what we call debt.This research aims to determine the effect of receivable turnover and the solvency ratio toward the financial distressThe problems of the research were: 1) is the receivable turnover effect toward financial distress condition on Garmen and textile company Listed on IDX on 2011-2015? 2) is the leverage ratio effect toward financial distress condition on Garmen and textile company Listed on IDX on 2011-2015 ? 3) Are the receivable turnover and solvency ratio effect toward financial distress condition on Garmen and textile company Listed on IDX on 2011-2015?The sample of this research is 11 Manufacture company of sub sector Garmen And Textile were taken by using purposive sampling techniques. This research data used secondary data that getting from literature review. Data were tested using multiple linear regression analysis to determine the effect between one variable with another variables, and the data was then processed using SPSS 22.0 for windows.Result of the research showed that partially, receivables turnover hadn’t a significant effect toward  the financial distress. Partially, solvency ratio (Debt to Asset) had a significant influence toward financial distress Simultaneously, receivable turnover and solvency ratio had a significant effect toward financial distress. Kata kunci:Waste Bank, Waste Bank Management, Waste Bank Basic Concepts, Economic Improvement of the Family

Risk Factors of Collateralized Loan Obligations and Corporate Bonds

2020 ◽  
Vol 32 (6) ◽  
pp. 347-355
Author(s):  
Mark Wahrenburg ◽  
Andreas Barth ◽  
Mohammad Izadi ◽  
Anas Rahhal
Keyword(s):  
Risk Factors ◽  
Risk Factor ◽  
Asset Pricing ◽  
Systemic Risk ◽  
Corporate Bonds ◽  
Risk Exposure ◽  
Expected Returns ◽  
Yield Spreads ◽  
Pricing Factors ◽  
Return Difference

AbstractStructured products like collateralized loan obligations (CLOs) tend to offer significantly higher yield spreads than corporate bonds (CBs) with the same rating. At the same time, empirical evidence does not indicate that this higher yield is reduced by higher default losses of CLOs. The evidence thus suggests that CLOs offer higher expected returns compared to CB with similar credit risk. This study aims to analyze whether this return difference is captured by asset pricing factors. We show that market risk is the predominant risk factor for both CBs and CLOs. CLO investors, however, additionally demand a premium for their risk exposure towards systemic risk. This premium is inversely related to the rating class of the CLO.

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