Systemic risk, financial markets, and performance of financial institutions

Lin, Edward M.H.; Sun, Edward W.; Yu, Min‐Teh

doi:10.1007/s10479-016-2113-8

Cited by 81 publications

(39 citation statements)

References 22 publications

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“…This is due to the fact that low interest rate environment in most developed countries cannot last infinitely. In its turn, banks and financial institutions all over the world face a number of systemic risk challenges and need to adapt to low growth and low interest rates, which place significant strain on their profitability and capital adequacy levels (Lin et al 2016).…”

Section: Introductionmentioning

confidence: 99%

Rethinking economic capital management through the integrated derivative-based treatment of interest rate and credit risk

Gubareva

Borges

2017

Ann Oper Res

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This research revisits the economic capital management regarding banking books of financial institutions exposed to the emerging market sovereign debt. We develop a derivative-based integrated approach to quantify economic capital requirements for considered jointly interest rate and credit risk. Our framework represents a major contribution to the empirical aspects of capital management. The proposed innovative modeling allows applying standard historic value-at-risk techniques developed for stand-alone risk factors to evaluate aggregate impacts of several risks. We use the time-series of credit default swap spreads and interest rate swap rates as proxy measures for credit risk and interest rate risk, respectively. An elasticity of interest rate risk and credit risk, considered a function of the business cycle phases, maturity of instruments, creditworthiness, and other macroeconomic parameters, is gauged by means of numerical modeling. Our contribution to the new economic thinking regarding the interest rate risk and credit rate risk management consists in their integrated treatment as the dynamics of interest rate and credit spreads is found to demonstrate the features of automatic stabilizers of each other. This research sheds light on how financial institutions may address hedge strategies against downside risks. It is of special importance for emerging markets heavily dependent on foreign capital as it potentially allows emerging market banks to improve risk management practices in terms of capital adequacy and Basel III rules. From the regulatory perspective, by taking into account inter-risk diversification effects it allows enhancing financial stability through jointly optimizing Pillar 1 and Pillar 2 economic capital. B Mariya Gubareva

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Section: Introductionmentioning

confidence: 99%

Rethinking economic capital management through the integrated derivative-based treatment of interest rate and credit risk

Gubareva

Borges

2017

Ann Oper Res

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“…In addition, relevant scholars introduced the consistency risk measurement standard, and proved that the VaR index didn't meet the sub-additivity, which indicated that the mean-VaR model had technical difficulty in calculation. As a result, relevant researchers built a CVaR portfolio optimization model that is easy to implement and extend [8].…”

Section: Literature Reviewmentioning

confidence: 99%

A Study on the Risk Regulation of Financial Investment Market Based on Quantitative

Li¹,

Deng²

2018

JAS

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To better supervise the risk of financial investment market, the Conditional Value At Risk (CVaR) investment portfolio optimization model of under single period investment is discussed and its expansion form is explained. The empirical simulation of Mean-CVaR model is carried out with historical simulation method, and the influence of confidence level and transaction cost on the effective frontier of the optimization model is mainly studied. The results show that the effective frontier of the Mean-CVaR model will move to the right as the confidence level increases and will also move to the lower right as the transaction cost increases. In addition, the empirical simulation part also confirms the rationality of the mean model and summarizes the relationship between-CVaR and-Value At Risk (VaR) and the characteristics of their respective effective frontier curves. It can be concluded that the Mean-CVaR model has a good effect on the risk supervision of financial investment market.

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“…Huang et al [23] used a threshold method to construct the financial network structure of China's stock market by analyzing the nature and topological stability and studying the topological robustness of the network and found that while the financial network had certain robustness against a random attack, it was brittle against a calculated attack. Lin et al [24] employed MST and PMFG to build and analyze a financial market network by dynamically highlighting the key node in the network, studied the network stability, and certified that it is robust in terms of recognizing the key node using the centrality of the complex network node. Vitali et al [25] dynamically analyzed the relationship between network nodes by establishing a financial network model between banks and companies, analyzing the indicators of the network's topological structure, and studying the network's degree of invulnerability.…”

Section: Related Literaturesmentioning

confidence: 99%

Dynamic Evolution of Securities Market Network Structure under Acute Fluctuation Circumstances

Liu

Chen

2017

Complexity

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This empirical research applies cointegration in the traditional measurement method first to build directed weighted networks in the context of stock market. Then, this method is used to design the indicators and the value simulation for measuring network fluctuation and studying the dynamic evolution mechanism of stock market transaction networks as affected by price fluctuations. Finally, the topological structure and robustness of the network are evaluated. The results show that network structure stability is strong in the bull market stage and weak in the bear market stage. And the convergence rate of the dynamic evolution of network fluctuation is higher in the bull market stage than in the bear market stage.

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Systemic risk, financial markets, and performance of financial institutions

Cited by 81 publications

References 22 publications

Rethinking economic capital management through the integrated derivative-based treatment of interest rate and credit risk

Rethinking economic capital management through the integrated derivative-based treatment of interest rate and credit risk

A Study on the Risk Regulation of Financial Investment Market Based on Quantitative

Dynamic Evolution of Securities Market Network Structure under Acute Fluctuation Circumstances

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