Event Details

Speaker: Cagin Ararat, Bilkent University
Location: Hill 705
Slides: ( TBA )

ABSTRACT
In the event of a financial crisis, it becomes important to measure and allocate the risk of a network of financial institutions. Such risk which takes into account the interconnectedness of the financial institutions is called "systemic risk". In this talk, we will focus on a recent multivariate approach for measuring systemic risk where the state of the financial network is modeled as a random vector of individual equities/losses. Then, the systemic risk measure is defined as the set of all capital allocation vectors that make the "impact of the system to the society" acceptable. We present a dual representation theorem for the systemic risk measure and provide economic interpretations of the dual variables. We also show that the systemic risk measure can be seen as a "multivariate shortfall risk measure under model uncertainty." As a special case, we will consider a financial system with exponential aggregation mechanism, where the distances of the financial institutions with respect to the society are measured in terms of relative entropies.