RISC Senior Scholar Colloquium – Systemic risk measures based on tail risk projections

By Dr. Tomer Shushi, Senior Lecturer (Tenured) at Ben-Gurion University of the Negev

Systemic risks have been proven 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 of a crisis are confronted with not only one risk but rather a system of risks. So the world of risks is, in fact, multivariate, and in this context dealing with a univariate risk measure is inadequate. I will present a novel approach to building systemic risk measures based on projections of the random vector of risks into models that focus on extreme loss events while capturing the dependence structure of the risks. The proposed measures can also be directly applied to various problems of assessing the risk from a system of mutually dependent risks. Several aspects will be examined, showing the strengths of such an approach as well as the weaknesses in specific cases