ECB paper tests systemic risk using ‘VAR for VaR’ model
Model could have applications in stress testing
A working paper published on June 18 by the European Central Bank (ECB) has taken a new approach to studying ‘tail interdependence', assessing which firms are most sensitive to systemic shocks.
In VAR for VaR: measuring tail dependence using multivariate regression quantiles, authors Halbert White, Tae-Hwan Kim and Simone Manganelli construct a quantile regression, which they say helps them handle outliers – useful when studying extreme financial events. They use a vector autoregression to
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