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CoVaR
Oct 4, 2008 1:08:52 GMT 4
Post by Sapphire Capital on Oct 4, 2008 1:08:52 GMT 4
CoVaR Tobias Adrian Federal Reserve Bank of New York Markus K. Brunnermeier Princeton University - Department of Economics September 1, 2008 FRB of New York Staff Report No. 348 Abstract: We define CoVaR as the value at risk (VaR) of financial institutions conditional on other institutions being in distress. The increase of CoVaR relative to VaR measures spillover risk among institutions. We estimate CoVaR using quantile regressions and document significant CoVaR increases among financial institutions. We identify six risk factors that allow institutions to offload tail risk and show that such hedging reduces the wedge between CoVaR and VaR. We argue that financial institutions should report CoVaR in addition to VaR, and we draw implications for risk management, regulation, and systemic risk. We define co-expected shortfall as a sum of CoVaRs. papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1269446_code387943.pdf?abstractid=1269446&mirid=1
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