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Conditional risk measures in a bipartite market structure

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  • Oliver Kley
  • Claudia Kluppelberg
  • Gesine Reinert

Abstract

In this paper we study the effect of network structure between agents and objects on measures for systemic risk. We model the influence of sharing large exogeneous losses to the financial or (re)insuance market by a bipartite graph. Using Pareto-tailed losses and multivariate regular variation we obtain asymptotic results for systemic conditional risk measures based on the Value-at-Risk and the Conditional Tail Expectation. These results allow us to assess the influence of an individual institution on the systemic or market risk and vice versa through a collection of conditional systemic risk measures. For large markets Poisson approximations of the relevant constants are provided in the example of an insurance market. The example of an underlying homogeneous random graph is analysed in detail, and the results are illustrated through simulations.

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  • Oliver Kley & Claudia Kluppelberg & Gesine Reinert, 2015. "Conditional risk measures in a bipartite market structure," Papers 1510.00616, arXiv.org.
    • Handle: RePEc:arx:papers:1510.00616
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    References listed on IDEAS

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    1. Oliver Kley & Claudia Kluppelberg, 2015. "Bounds for randomly shared risk of heavy-tailed loss factors," Papers 1503.03726, arXiv.org, revised Apr 2016.
    2. Danielsson, Jon & James, Kevin R. & Valenzuela, Marcela & Zer, Ilknur, 2016. "Model risk of risk models," Journal of Financial Stability, Elsevier, vol. 23(C), pages 79-91.
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    5. Chen Chen & Garud Iyengar & Ciamac C. Moallemi, 2013. "An Axiomatic Approach to Systemic Risk," Management Science, INFORMS, vol. 59(6), pages 1373-1388, June.
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    7. Rustam Ibragimov, 2009. "Portfolio diversification and value at risk under thick-tailedness," Quantitative Finance, Taylor & Francis Journals, vol. 9(5), pages 565-580.
    8. Li Zhu & Haijun Li, 2012. "Asymptotic Analysis of Multivariate Tail Conditional Expectations," North American Actuarial Journal, Taylor & Francis Journals, vol. 16(3), pages 350-363.
    9. Sebastian von Dahlen & Goetz von Peter, 2012. "Natural catastrohpes and global reinsurance - exploring the linkages," BIS Quarterly Review, Bank for International Settlements, December.
    10. repec:dau:papers:123456789/353 is not listed on IDEAS
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    Cited by:

    1. Oliver Kley & Claudia Klüppelberg & Gesine Reinert, 2016. "Risk in a Large Claims Insurance Market with Bipartite Graph Structure," Operations Research, INFORMS, vol. 64(5), pages 1159-1176, October.

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