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Systemic risk measurement in the Eurozone - A multivariate GARCH estimation of CoVaR

Vogl, Christian LU (2015) NEKN01 20151
Department of Economics
Abstract
In this essay the systemic risk contributions of financial institutions in the European Monetary
Union are analyzed. For this purpose the CoVaR measure, first introduced by Adrian and
Brunnermeier (2011), is applied. The definition of CoVaR is changed in the way that 1) the
definition of financial distress is changed from an institution being exactly at its VaR-level to
being at most at its VaR, and 2) the CoVaR measure is extended to allow for measuring the
systemic risk contribution of a group of banks. For the calculations of CoVaR an underlying
student t-distribution for the returns is assumed. Volatility and time-varying correlations
between the institutions and the system are modeled using a GARCH-DCC approach. The
... (More)
In this essay the systemic risk contributions of financial institutions in the European Monetary
Union are analyzed. For this purpose the CoVaR measure, first introduced by Adrian and
Brunnermeier (2011), is applied. The definition of CoVaR is changed in the way that 1) the
definition of financial distress is changed from an institution being exactly at its VaR-level to
being at most at its VaR, and 2) the CoVaR measure is extended to allow for measuring the
systemic risk contribution of a group of banks. For the calculations of CoVaR an underlying
student t-distribution for the returns is assumed. Volatility and time-varying correlations
between the institutions and the system are modeled using a GARCH-DCC approach. The
systemic risk contribution is then obtained by solving numerically for ∆CoVaR. The
calculations are based on daily return data of 32 banks from 10 Eurozone countries covering
the period 1 st May 2005 to 1 st May 2015. The analysis of the results of the collective systemic
risk contribution by country receives extra attention. (Less)
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author
Vogl, Christian LU
supervisor
organization
course
NEKN01 20151
year
type
H2 - Master's Degree (Two Years)
subject
keywords
DCC model, Multivariate GARCH, CoVaR, Systemic risk
language
English
id
7855906
date added to LUP
2015-09-15 12:36:23
date last changed
2015-09-15 12:36:23
@misc{7855906,
  abstract     = {In this essay the systemic risk contributions of financial institutions in the European Monetary 
Union are analyzed. For this purpose the CoVaR measure, first introduced by Adrian and 
Brunnermeier (2011), is applied. The definition of CoVaR is changed in the way that 1) the 
definition of financial distress is changed from an institution being exactly at its VaR-level to 
being at most at its VaR, and 2) the CoVaR measure is extended to allow for measuring the 
systemic risk contribution of a group of banks. For the calculations of CoVaR an underlying 
student t-distribution for the returns is assumed. Volatility and time-varying correlations 
between the institutions and the system are modeled using a GARCH-DCC approach. The 
systemic risk contribution is then obtained by solving numerically for ∆CoVaR. The 
calculations are based on daily return data of 32 banks from 10 Eurozone countries covering 
the period 1 st May 2005 to 1 st May 2015. The analysis of the results of the collective systemic 
risk contribution by country receives extra attention.},
  author       = {Vogl, Christian},
  keyword      = {DCC model,Multivariate GARCH,CoVaR,Systemic risk},
  language     = {eng},
  note         = {Student Paper},
  title        = {Systemic risk measurement in the Eurozone - A multivariate GARCH estimation of CoVaR},
  year         = {2015},
}