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Title: A novel approach to measure systemic risks using multivariate tail moments: From theory to practice Authors:  Tomer Shushi - Ben Gurion University of the Negev (Israel) [presenting]
Zinoviy Landsman - University of Haifa (Israel)
Udi Makov - University of Haifa (Israel)
Abstract: Systemic risks have been proved to be extremely harmful to the Financial system with a potential for a catastrophic failure occurring when risks are mutually dependent. In practice, risk managers that focus on the possibility for a crisis are confronted with not only one risk but rather a system of risks (such as several business lines). So the world of risks is, in fact, multivariate and in this context dealing with univariate risk measures is inadequate. We will present a novel approach to building systemic risk measures based on multivariate tail moments. While having intuitive reasoning and clear theoretical foundations, they can also be directly applied for various problems of assessing the risk from a system of mutually dependent risks. In particular, we will present the multivariate tail conditional expectation and the multivariate tail covariance matrix, as natural extensions of the expected shortfall and tail variance measures, respectively. Then, several aspects will be examined, showing the capability of such an approach in practice.