We propose a multivariate approach towards the measurement of systemic risk that combines the tasks of measuring risk and allocating it to the d banks in the system. This is in contrast to the scalar approach which is the predominant approach in the current literature and separates the two tasks. We show that the multivariate approach allows to consider feedback effects that take into account the impact of capital regulation on the system of banks. Furthermore, we show that the multivariate risk measures provide significantly more information about systemic risk than previous approaches. We apply our methodology to systemic risk aggregation as described in Chen, Iyengar & Moallemi (2013) and to network models as in Eisenberg & Noe (2001) and Cifuentes, Shin & Ferrucci (2005).
In the second part of the talk, we provide an overview over other applications of the multivariate approach in risk measurement and its relation to the more traditional scalar approaches.
Homepage of Birgit Rudloff