Frederic Malherbe - UCL

Abstract

We identify a bias in existing systemic risk measures based on the market value of equity (e.g., SRISK). The bias is a function of expected creditor losses and increases in the variance of the realised value of bank assets. This implies that such systemic risk measures decrease when the volatility of a bank's assets increases. We propose an approach that addresses the bias and, based on the novel concept of a systemic-risk neutral probability measure, allows to capture the interaction of changes in volatility at the bank and the sectoral level. Then, we estimate and simulate a combined model for equity and CDS prices for a set of global banks. The bias-correcting term is quantitatively important, and, as theory predicts, increases in times of stress. Based on our estimates, we introduce a systemic risk dashboard that allows to decompose systemic risk based on the assumed importance of different externalities.

Additional information:

• Speaker: Frederic Malherbe 
• Time: Wednesday, 09.07.2025, 14:45 - 16:00
• Location: Faculty Lounge, Room 0.036
• Further links:
  • Frederic Malherbe 's webpage
• Organizer: Finance Group
• Contact:
  • Almut Lunkenheimer
  • +49 228 73-9228
  • ifs@uni-bonn.de