Measuring and allocating systemic risk

Markus K. Brunnermeier, Patrick Cheridito

Research output: Contribution to journalArticlepeer-review

6 Scopus citations

Abstract

In this paper, we develop a framework for measuring, allocating and managing systemic risk. SystRisk, our measure of total systemic risk, captures the a priori cost to society for providing tail-risk insurance to the financial system. Our allocation principle distributes the total systemic risk among individual institutions according to their size-shifted marginal contributions. To describe economic shocks and systemic feedback effects, we propose a reduced form stochastic model that can be calibrated to historical data. We also discuss systemic risk limits, systemic risk charges and a cap and trade system for systemic risk.

Original languageEnglish (US)
Article number46
JournalRisks
Volume7
Issue number2
DOIs
StatePublished - Jun 2019

All Science Journal Classification (ASJC) codes

  • Accounting
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management

Keywords

  • Cap and trade
  • Feedback effects
  • Shadow prices
  • Systemic risk allocation
  • Systemic risk charges
  • Systemic risk limits
  • Systemic risk measure

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