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Deconstructing systemic risk: A reverse stress testing approach

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  • Javier Ojea-Ferreiro

Abstract

The financial sector faces different systemic events. The early recognition of these events is a key step to monitor and track possible financial crises. Three main questions arise related to systemic risk, and they deal with their quantification, their probability of occurrence and the role of main contributors. This paper proposes a methodology based on a reverse stress test exercise to shed light on these questions. Time series and cross-section information regarding systemic risk are obtained. Further, an assessment of how these results of systemic assessment could change depending on key parameters in a Gaussian framework is undertaken and, finally, a small empirical exercise is performed.

Suggested Citation

  • Javier Ojea-Ferreiro, 2021. "Deconstructing systemic risk: A reverse stress testing approach," CNMV Working Papers CNMV Working Papers no. 7, CNMV- Spanish Securities Markets Commission - Research and Statistics Department.
  • Handle: RePEc:cnv:wpaper:dt_74en
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    References listed on IDEAS

    as
    1. Javier Ojea Ferreiro, 2018. "Contagion spillovers between sovereign and financial European sector from a Delta CoVaR approach," Documentos de Trabajo del ICAE 2018-12, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Systemic risk; Expected Shortfall; financial model;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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