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Systemic Risk in the European Financial and Energy Sector: Dynamic Factor Copula Approach

Author

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  • Matej Nevrla

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)

Abstract

In this paper, we perform analysis of systemic risk in the financial and energy sector in Europe. In our investigation, we work with daily time series of CDS spreads. We employ factor copula model with GAS dynamics of Oh and Patton (2016) for estimation purposes of dependency structures between market participants. Based on the estimated models, we perform Monte Carlo simulations in order to obtain future values of CDS spreads, and then we measure probability of systemic events in given time points. We conclude that substantially higher systemic risk is present within the financial sector than in the energy sector. We also find that the most systemic vulnerable financial and energy companies come from Spain.

Suggested Citation

  • Matej Nevrla, 2017. "Systemic Risk in the European Financial and Energy Sector: Dynamic Factor Copula Approach," Working Papers IES 2017/11, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2017.
    • Handle: RePEc:fau:wpaper:wp2017_11
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    File URL: http://ies.fsv.cuni.cz/sci/publication/show/id/5656/lang/cs
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    Cited by:

    1. Radu Lupu & Adrian Cantemir Călin & Cristina Georgiana Zeldea & Iulia Lupu, 2021. "Systemic Risk Spillovers in the European Energy Sector," Energies, MDPI, vol. 14(19), pages 1-23, October.

    More about this item

    Keywords

    Credit Default Swap; Energy Sector; Factor Copula; Financial Sector; Generalized Autoregressive Score Model; Systemic Risk;
    All these keywords.

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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