Dissertations / Theses on the topic 'Systemic risk measure'

Abstract In recent years we have witnessed how distress can spread quickly through the financial system and threaten financial stability. Hence there has been increased focus on developing systemic risk indicators that can be used by central banks and others as a monitoring tool. For Sveriges Riksbank it is of great value to be able to quantify the risks that can threaten the Swedish financial system CoVaR is a systemic risk measure implemented here with that with that purpose. CoVaR, which stands for conditional Value at Risk, measures a financial institutions contribution to systemic risk and its contribution to the risk of other financial institutions. The conclusion is that CoVaR can together with other systemic risk indicators help get a better understanding of the risks threatening the stability of the Swedish financial system.

In questa tesi studiamo problemi di pricing e misure di rischio in mercati con frizioni, e misure di rischio sistemico. Il contesto è quello di mercati uniperiodali. Nel primo capitolo consideriamo un modello con costi di transazione convessi all'istante iniziale, vincoli convessi sui portafogli, e insieme di accettazione convesso che riflette le preferenze di un agente che agisce da compratore sul mercato. Definiamo l'insieme dei "prezzi consistenti" per ogni possbile payoff, dove con consistenti intendiamo sia rispetto al mercato, sia rispetto alle preferenze dell'agente. Mostriamo che l'estremo superiore di questo insieme coincide con il noto prezzo di superreplicazione, e in questo modo diamo un'interpretazione a quest ultimo al di là di quella classica nei problemi di hedging. Estendiamo il Teorema Fondamentale dell'Asset Pricing a un contesto dove gli "accordi accettabili" sostituiscono gli arbitraggi (cioè l'insieme di accettazione sostituisce il cono positivo), e i prezzi non sono lineari. Questo consente, sotto opportune ipotesi, di caratterizzare l'insieme dei prezzi consistenti di un payoff. Nel secondo capitolo, consideriamo un'economia astratta con costi di transazione sia all'istante iniziale sia a scadenza, e vincoli sui portafogli. Non assumiamo convessità a priori, anche se alcuni risultati valgono solo sotto opportune ipotesi di convessità. Un regolatore esterno fissa l'insieme di accettazione, cioè l'insieme delle possibili posizioni a scadenza di un agente che lui ritiene accettabili dal punto di vista della rischiosità. Definiamo requisiti di capitale che generalizzano le misure di rischio coerenti di Artzner, Delbaen, Eber e Heath (1999) in quanto rappresentano il minimo importo di capitale che l'agente deve investire sul mercato per reggiungere i requisiti di accettabilità. Il capitolo si propone di studiare le proprietà di queste misure di rischio generalizzate. In particolare, stabiliamo delle condizioni sui portafogli che assicurano che la misura di rischio sia semicontinua dal basso, e confrontiamo queste condizioni con le assunzioni del tipo "no accordi accettabili". Nel caso convesso e quasi convesso, forniamo anche una rappresentazione duale di questi funzionali. Nel terzo capitolo stabiliamo rappresentazioni duali di misure di rischio sistemico. Modelliamo le interazioni tra un numero finito di istituzioni attraverso una funzione di aggegazione, e assumiamo che un regolatore decida l'insieme di posizioni aggregate accettabili. Il rischio sistemico è misurato come il minimo quantitativo di capitale che deve essere inserito nel sistema (prima o dopo l'aggregazione) per far sì che la posizione aggregata sia accettabile. Lavoriamo dunque con misure di rischio sistemico sia del tipo "prima allocare, poi aggregare", sia "prima aggregare, poi allocare". In entrambi i casi forniamo un'analisi dettagliata del corrispondente insieme di accettazione sistemico e della sua funzione di supporto. Lo stesso approccio fornisce una semplice dimostrazione della rappresentazione duale di misure di rischio per posizioni univariate indotte da funzioni di utilità.
In this thesis, we study pricing and risk measures in markets with frictions, and systemic risk measures. All along the thesis, we focus on uniperiodal market models. In the first chapter, we consider a model with convex transaction costs at initial time, convex portfolio constraints and convex acceptance set that reflects the preferences of an agent who acts as a buyer in the market. We define the set of market consistent prices for every conceivable payoff, where consistent is meant with respect to the market and the preferences of the buyer. We show that the supremum of this set coincides with the well-known superreplication price, this giving to this functional an interpretation that goes beyond the classical hedging explanation. We develop an extension of the Fundamental Theorem of Asset Pricing in a context where arbitrages are replaced by acceptable deals (i.e. the positive cone is replaced by the acceptance set) and prices are not linear. This allows to characterize, under suitable assumptions, the set of market consistent prices of any payoff. In the second chapter, we consider an abstract economy with transaction costs both at initial time and at maturity, and portfolio constraints. We do not assume convexity a priori, tough some results hold only under convexity assumptions. An external regulator fixes the acceptance set, that is the set of possible agent's capital positions that he deems acceptable from a risk perspective. We define capital adequacy rules that generalize the coherent risk measures of Artzner, Delbaen, Eber and Heath (1999) in that they represent the minimum amount that the agent has to invest in the market in order to reach the acceptability requirements. The chapter aims to study the properties of these generalized risk measures. In particular, we establish conditions on the portfolios ensuring that they are lower semicontinuous, and we compare these conditions with no-acceptable deal type assumptions. In convex and quasi convex case, we also provide a dual representation of the functionals of interest. In the third chapter we establish dual representations of systemic risk measures. We model interactions among a finite number of institutions through an aggregation function, and we assume that a regulator fixes a set of acceptable aggregated positions. Systemic risk is estimated as the minimum amount of capital that has to be injected in the system (before or after aggregation) in order to make the aggregated position acceptable. Hence, we deal with systemic risk measures of both ``first allocate, then aggregate'' and ``first aggregate, then allocate'' type. In both cases, we provide a detailed analysis of the corresponding systemic acceptance sets and their support functions. Our general results cover some specific cases already studied in literature. The same approach delivers a simple and self-contained proof of the dual representation of utility-based risk measures for univariate positions.

This Thesis focuses on two main topics. Firstly, we introduce and analyze the novel concept of Systemic Optimal Risk Transfer Equilibrium (SORTE), and we progressively generalize it (i) to a multivariate setup and (ii) to a dynamic (conditional) setting. Additionally we investigate its relation to a recently introduced concept of Systemic Risk Measures (SRM). We present Conditional Systemic Risk Measures and study their properties, dual representation and possible interpretations of the associated allocations as equilibria in the sense of SORTE. On a parallel line of work, we develop a duality for the Entropy Martingale Optimal Transport problem and provide applications to problems of nonlinear pricing-hedging. The mathematical techniques we exploit are mainly borrowed from functional and convex analysis, as well as probability theory. More specifically, apart from a wide range of classical results from functional analysis, we extensively rely on Fenchel-Moreau-Rockafellar type conjugacy results, Minimax Theorems, theory of Orlicz spaces, compactness results in the spirit of Komlós Theorem. At the same time, mathematical results concerning utility maximization theory (existence of optima for primal and dual problems, just to mention an example) and optimal transport theory are widely exploited. The notion of SORTE is inspired by the Bühlmann's classical Equilibrium Risk Exchange (H. Bühlmann, "The general economic premium principle", Astin Bulletin, 1984). In both the Bühlmann and the SORTE definition, each agent is behaving rationally by maximizing his/her expected utility given a budget constraint. The two approaches differ by the budget constraints. In Bühlmann's definition the vector that assigns the budget constraint is given a priori. In the SORTE approach, on the contrary, the budget constraint is endogenously determined by solving a systemic utility maximization problem. SORTE gives priority to the systemic aspects of the problem, in order to first optimize the overall systemic performance, rather than to individual rationality. Single agents' preferences are, however, taken into account by the presence of individual optimization problems. The two aspects are simultaneously considered via an optimization problem for a value function given by summation of single agents' utilities. After providing a financial and theoretical justification for this new idea, in this research sufficient general assumptions that guarantee existence, uniqueness, and Pareto optimality of such a SORTE are presented. Once laid the theoretical foundation for the newly introduced SORTE, this Thesis proceeds in extending such a notion to the case when the value function to be optimized has two components, one being the sum of the single agents' utility functions, as in the aforementioned case of SORTE, the other consisting of a truly systemic component. This marks the progress from SORTE to Multivariate Systemic Optimal Risk Transfer Equilibrium (mSORTE). Technically, the extension of SORTE to the new setup requires developing a theory for multivariate utility functions and selecting at the same time a suitable framework for the duality theory. Conceptually, this more general setting allows us to introduce and study a Nash Equilibrium property of the optimizers. Existence, uniqueness, Pareto optimality and the Nash Equilibrium property of the newly defined mSORTE are proved in this Thesis. Additionally, it is shown how mSORTE is in fact a proper generalization, and covers both from the conceptual and the mathematical point of view the notion of SORTE. Proceeding further in the analysis, the relations between the concepts of mSORTE and SRM are investigated in this work. The notion of SRM we start from was introduced in the papers "A unified approach to systemic risk measures via acceptance sets" (Math. Finance, 2019) and "On fairness of systemic risk measures" (Finance Stoch., 2020) by F. Biagini, J.-P. Fouque, M. Frittelli, and T. Meyer-Brandis. SRM of Biagini et al. are generalized in this Thesis to a dynamic (namely conditional) setting, adding also a systemic, multivariate term in the threshold functions that Biagini et al. consider in their papers. The dynamic version of mSORTE is introduced, and it is proved that the optimal allocations of dynamic SRM, together with the corresponding fair pricing measures, yield a dynamic mSORTE. This in particular remains true if conditioning is taken with respect to the trivial sigma algebra, which is tantamount to working in the non-dynamic setting covered in Biagini et al. for SRM, and in the previous parts of our work for mSORTE. The case of exponential utility functions is thoroughly examined, and the explicit formulas we obtain for this specific choice of threshold functions allow for providing a time consistency property for allocations, dynamic SRM and dynamic mSORTE. The last part of this Thesis is devoted to a conceptually separate topic. Nonetheless, a clear mathematical link between the previous work and the one we are to describe is established by the use of common techniques. A duality between a novel Entropy Martingale Optimal Transport (EMOT) problem (D) and an associated optimization problem (P) is developed. In (D) the approach taken in Liero et al. (M. Liero, A. Mielke, and G. Savaré, "Optimal entropy-transport problems and a new Hellinger-Kantorovich distance between positive measures", Inventiones mathematicae, 2018) serves as a basis for adding the constraint, typical of Martingale Optimal Transport (MOT) theory, that the infimum of the cost functional is taken over martingale probability measures, instead of finite positive measures, as in Liero et al.. The Problem (D) differs from the corresponding problem in Liero et al. not only by the martingale constraint, but also because we admit less restrictive penalization terms D, which may not have a divergence formulation. In Problem (P) the objective functional, associated via Fenchel conjugacy to the terms D, is not any more linear, as in Optimal Transport or in MOT. This leads to a novel optimization problem which also has a clear financial interpretation as a non linear subhedging value. Our results in this Thesis establish a novel nonlinear robust pricing-hedging duality in financial mathematics, which covers a wide range of known robust results in its generality. The research for this Thesis resulted in the production of the following works: F. Biagini, A. Doldi, J.-P. Fouque, M. Frittelli, and T. Meyer-Brandis, "Systemic optimal risk transfer equilibrium", Mathematics and Financial Economics, 2021; A. Doldi and M. Frittelli, "Multivariate Systemic Optimal Risk Transfer Equilibrium", Preprint: arXiv:1912.12226, 2019; A. Doldi and M. Frittelli, "Conditional Systemic Risk Measures", Preprint: arXiv:2010.11515, 2020; A. Doldi and M. Frittelli, "Entropy Martingale Optimal Transport and Nonlinear Pricing-Hedging Duality", Preprint: arXiv:2005.12572, 2020.

Considering the effects generated by the recent financial crisis, and, given the ease with which a situation of financial distress caused impact beyond and outwith financial system, the concept of systemic risk has gained even more attention in the worldwide community. Despite many studies, there is no recognised single definition of systemic risk and as demonstrated by the existence of numerose metrics in the relative literature, finding effective measures to assess systemic risk is one of the toughest challenges for many individuals and institutions. The aimo of this work is to provide a measure of systemic risk through the use of three econometric methods: principal component analysis, Granger causality test and nonlinear causality test of Diks and Panchenko.

Neste trabalho, aprofundamos o estudo sobre risco sistêmico via funções de agregação. Consideramos três carteiras diferentes como proxy para um sistema econômico, estas carteiras são consistidas por duas funções de agregação, baseadas em todos as ações do E.U.A, e um índice de mercado. As medidas de risco aplicadas são Value at Risk (VaR), Expected Shortfall (ES) and Expectile Value at Risk (EVaR), elas são previstas através do modelo GARCH clássico unido com nove funções de distribuição de probabilidade diferentes e mais por um método não paramétrico. As previsões são avaliadas por funções de perda e backtests de violação. Os resultados indicam que nossa abordagem pode gerar uma função de agregação adequada para processar o risco de um sistema previamente selecionado.
In this work, we deepen the study of systemic risk measurement via aggregation functions. We consider three different portfolios as a proxy for an economic system, these portfolios are consisted in two aggregation functions, based on all U.S. stocks and a market index. The risk measures applied are Value at Risk (VaR), Expected Shortfall (ES) and Expectile Value at Risk (EVaR), they are forecasted via the classical GARCH model along with nine distribution probability functions and also by a nonparametric approach. The forecasts are evaluated by loss functions and violation backtests. Results indicate that our approach can generate an adequate aggregation function to process the risk of a system previously selected.

The main theme of the thesis is systemic risk measurement. This extremely young field of research has gained a lot of attention in recent times from academics and practioners alike because of global financial crises. The main contributions of the thesis can be grouped in four broad items. Firstly, we propose a novel categorization of the risk measures advanced in recent years based on the modeling assumptions they rely upon. We identified four categories: measures based on portfolio theory, econometric indicators, network analysis and measures based on multivariate default distribution. The second set of contributions regards the CIMDO framework, a methodology heavily used in systemic risk studies. We proved a new theoretical independence result that significantly extended previous ones. We also performed a comprehensive stability study where every input of the methodology was considered and whose conclusions should serve as guidance for future CIMDO users. The third contribution is a new contagion model that is both tractable and flexible enough to be used with heterogeneous portfolios. We provided several theoretical results with respect to both marginal and joint default distribution. We also detailed a recursive algorithm to calculate the portfolio loss distribution in an efficient way. An application to the problem of pricing and hedging CDO products is hence shown. Lastly, we introduced a new systemic risk measure in the context of contagion models called contagion loss ratio (CLR). It is based on attributing losses to either idiosyncratic or infection-driven events and represents the percentage of the total portfolio losses due to contagion. We showed how to calculate it in a variety of models and presented an application to the problem of banking stability.

Cette thèse analyse les sources d’inefficacité qui peuvent générer un risque systémique au sein du système financier et étudie les différentes mesures associées. Le premier article présente une revue de la littérature sur le risque systémique et la politique macroprudentielle : 1) les effets négatifs de la procyclicité pour le système financier dans son ensemble ainsi que pour l’économie réelle; 2) le risque de contagion entre institutions financières. Le second article de la thèse propose une nouvelle mesure du risque systémique visant à capturer efficacement l’importance systémique de chaque institution financière au sein d’un système donné. Le troisième article de la thèse analyse la structure de la dette des banques. Les banques choisissent la maturité de leur dette à court et/ou long terme. Les externalités négatives générées par l’excès de financement de court terme n’apparaissent que lorsque la probabilité d’un choc macroéconomique est suffisamment large
This thesis analysis the inefficiencies which may trigger the systemic risks in the financial system and studies the related measures to quantify such risks. The first article surveys the systemic risk in the financial system and the related macro-prudential policy: 1) the pro-cyclicality effect is harmful to the whole financial system as well as to the real economy; 2) the contagion risk among financial institutions. The second article of thesis proposes a new systemic risk measure to efficiently capture the systemic importance of each financial institution within a given system. The term systemic risk refers to the contagion risk to which each bank contributes to the financial system. The third article of thesis analysis the debt structure in the banking sector. Banks choose their debt maturity structure by weighting short term against long term debt. The externalities caused by over borrowing in short term debt exist only when the probability of macro shock is large

The main objective of the thesis is the construction of a systemic risk indicator based on the dispersion of the risk measures of the individual institutions of the system. The thesis presents a brief introduction to the literature on systemic risk measures, focusing on the Marginal Expected Shortfall (MES) and the delta CoVaR, which consider not only the yield of an individual firm, but also the effect of its performance on the whole system, and on the connectedness measure between the financial institutions, which measures the relationship between the institutions. We apply the systemic risk and the connectedness measures to the daily returns of the European financial institutions from the 1St January 1985 to 12th May 2014. Finally, to aggregate the risk measures and build a systemic risk indicator, we estimate the measure entropy and find that the indicator has good forecasting abilities for the financial crisis.

This thesis aims at the study of systemic risk measurement, which became crucial after the 2007 − 2009 financial crisis. The objective of the thesis is twofold: (i) we address the issue of assessing the accuracy of systemic risk measures, (ii) we investigate the role of the long-range dependence in systemic risk forecasting, under both methodological and empirical perspectives. From the methodological point of view, we propose two appropriate loss functions, the Tail Tick Loss function and the Tail Mean Square Error, specifically designed to evaluate the CoVaR and MES accuracy, respectively. Moreover, we introduce a comprehensive model called Asymmetric-Component-GARCH (ACGARCH), which is able to capture both the leverage effect and long-range dependence. An empirical analysis of different bivariate volatility models to the daily returns of 91 US financial institutions in the period 2000 − 2012 confirms the need of employing appropriate loss functions to evaluate systemic risk accuracy and to discriminate among different competing models. Moreover, empirical results encourage the usage of the ACGARCH model in the systemic risk framework.

Systemic risk measures have gained popularity in the recent finance literature and they are widely applied for detecting systemic risk contributions of financial institutions. It has also been suggested that a regulator should base capital requirements upon the contribution to systemic risk of each single institution. We analyse market data based systemic risk measures such as Delta CoVaR, MES and SRISK. We find that the uncertainty about their estimates is high. Using bootstrap techniques, we develop a nonparametric hypothesis test to assess if these measures are statistically different between institutions. We find that it is hard to rank institutions using their CoVaR or MES, while SRISK gives good results. We conclude that confidence intervals, incorporating the uncertainty of the measure should be provided and that systemic risk measures should be applied with caution, especially when they are used for important purposes such as the design of a new regulatory framework, because they can lead to expensive bad decisions.

This study aimed to create the first measure of risk for UK gang-affiliation. A pilot stage invited gang affiliated and non-gang affiliated participants between the ages of 16–25 to retrospectively self-report on 58 items of risk exposure at the age of 11. Based on performance of these items, a 26-item measure was developed and administered to a main study sample (n=185) of gang affiliated and non-gang affiliated participants. Categorical Principal Component Analysis was applied to data, yielding a single-factor solution (historic lack of safety and current perception of threat). A 15-item gang-affiliation risk measure (GARM) was subsequently created. The GARM demonstrated good internal consistency, construct validity and discriminative ability. Items from the GARM were then transformed to read prospectively, resulting in a test measure for predictive purposes (T-GARM). However, the T-GARM requires further validation regarding its predictive utility and generalisability.

The objective of the research was to develop and validate a multifaceted model such as a fuzzy Analytical Hierarchy Process (AHP) model that considers both qualitative and quantitative elements with relative significance in assessing the likelihood of falls and aid in the design of NASA Ground Support Operations in aerospace environments. The model represented linguistic variables that quantified significant risk factor levels. Multiple risk factors that contribute to falls in NASA Ground Support Operations are task related, human/personal, environmental, and organizational. Six subject matter experts were asked to participate in a voting system involving a survey where they judge risk factors using the fundamental pairwise comparison scale. The results were analyzed and synthesize using Expert Choice Software, which produced the relative weights for the risk factors. The following are relative weights for these risk factors: Task Related (0.314), Human/Personal (0.307), Environmental (0.248), and Organizational (0.130). The overall inconsistency ratio for all risk factors was 0.07, which indicates the model results were acceptable. The results show that task related risk factors are the highest cause for falls and the organizational risk are the lowest cause for falls in NASA Ground Support Operations. The multiple risk factors weights were validated by having two teams of subject matter experts create priority vectors separately and confirm the weights are valid. The fuzzy AHP model usability was utilizing fifteen subjects in a repeated measures analysis. The subjects were asked to evaluate three scenarios in NASA KSC Ground Support Operations regarding various case studies and historical data. The three scenarios were Shuttle Landing Facility (SLF), Launch Complex Payloads (LCP), and Vehicle Assembly Building (VAB). The Kendall Coefficient of Concordance for assessment agreement between and within the subjects was 1.00. Therefore, the appraisers are applying essentially the same standard when evaluating the scenarios. In addition, a NASA subject matter expert was requested to evaluate the three scenarios also. The predicted value was compared to accepted value. The results from the subject matter expert for the model usability confirmed that the predicted value and accepted value for the likelihood rating were similar. The percentage error for the three scenarios was 0%, 33%, 0% respectively. Multiple descriptive statistics for a 95% confidence interval and t-test are the following: coefficient of variation (21.36), variance (0.251), mean (2.34), and standard deviation (0.501). Model validation was the guarantee of agreement with the NASA standard. Model validation process was partitioned into three components: reliability, objectivity, and consistency. The model was validated by comparing the fuzzy AHP model to NASA accepted model. The results indicate there was minimal variability with fuzzy AHP modeling. As a result, the fuzzy AHP model is confirmed valid. Future research includes developing fall protection guidelines.
Ph.D.
Department of Industrial Engineering and Management Systems
Engineering and Computer Science
Industrial Engineering PhD

Studies in the UK and elsewhere have identified that flooding comes with diverse impacts, ranging from significant financial costs (tangible) to social (intangible) impacts on households. However, it is not feasible for government spending on structural flood defences to adequately protect all at risk properties. Hence, the need for homeowners to take action in the form of investing in property level flood risk adaptation (PLFRA) measures to protect their properties has since been the subject of debate. However, the take-up of PLFRA measures remains low, due to factors such as financial constraints, aesthetics, emotional issues, and a lack of information on the actual cost and financial benefit of investing in the measures. Notably, previous research in this area has failed to include the value of intangible impacts such as health effects, meaning that the existing models do not reflect the full benefits of PLFRA measures. This in part is due to the inherent difficulty in monetising such intangible impacts. Nevertheless, evidence from the literature, indicates that knowledge of such impacts may be important in determining whether to invest in PLFRA measures. Based on a synthesis of the literature, a conceptual framework of the costs and benefits of PLFRA measures was developed. Data was collected through a questionnaire survey of homeowners who had experienced flood damage to their properties during the 2007 summer flood event. This data was combined with secondary data of the actual cost of reinstatement incurred in the aftermath of the 2007 flood event. By analysing these two data sets, the additional costs of resistance and resilience measures for four property types were established. The value of the intangible benefits of investing in PLFRA measures was found to be £653 per household per year representing an increase of 8% for resistance and 9% for resilience measures. Decision support lookup tables (DSLT) were developed so that homeowners can determine the cost effectiveness of PLFRA measures as pertaining to individual buildings; insurers can assess the level of potential financial benefit of adopting PLFRA measures by their customers, and perhaps offer incentives by way of premium reduction to encourage homeowners to invest in the measure. Flood risk assessment surveyors can determine the benefit cost ratio of taking up of PLFRA measures for their individual clients; thereby, enhancing the robustness of their professional advice. Most importantly, the DSLT has the potential to complement Government‘s effort in encouraging homeowners to invest in PLFRA measures.

The Autonomic Power System (APS) grand challenge was a multi-disciplinary EPSRC-funded research project that examined novel techniques that would enable the transition between today's and 2050's highly uncertain and complex energy network. Being part of the APS, this thesis reports on the sub-project 'RR2: Avoiding High-Impact Low Probability events'. The goal of RR2 is to develop new algorithms for controlling risk exposure to high-impact low probability (Hi-Lo) events through the provision of appropriate risk-sensitive control strategies. Additionally, RR2 is concerned with new techniques for identifying and modelling risk in future energy networks, in particular, the risk of Hi-Lo events. In this context, this thesis investigates two distinct problems arising from energy risk management. On the one hand, we examine the problem of finding managerial strategies for exercising the operational flexibility of energy assets. We look at this problem from a risk perspective taking into account non-linear risk preferences of energy asset managers. Our main contribution is the development of a risk-sensitive approach to the class of optimal switching problems. By recasting the problem as an iterative optimal stopping problem, we are able to characterise the optimal risk-sensitive switching strategies. As byproduct, we obtain a multiplicative dynamic programming equation for the value function, upon which we propose a numerical algorithm based on least squares Monte Carlo regression. On the other hand, we develop tools to identify and model the risk factors faced by energy asset managers. For this, we consider a class of models consisting of superposition of Gaussian and non-Gaussian Ornstein-Uhlenbeck processes. Our main contribution is the development of a Bayesian methodology based on Markov chain Monte Carlo (MCMC) algorithms to make inference into this class of models. On extensive simulations, we demonstrate the robustness and efficiency of the algorithms to different data features. Furthermore, we construct a diagnostic tool based on Bayesian p-values to check goodness-of-fit of the models on a Bayesian framework. We apply this tool to MCMC results from fitting historical electricity and gas spot price data- sets corresponding to the UK and German energy markets. Our analysis demonstrates that the MCMC-estimated models are able to capture not only long- and short-lived positive price spikes, but also short-lived negative price spikes which are typical of UK gas prices and German electricity prices. Combining together the solutions to the two problems above, we strive to capture the interplay between risk, uncertainty, flexibility and performance in various applications to energy systems. In these applications, which include power stations, energy storage and district energy systems, we consistently show that our risk management methodology offers a tradeoff between maximising average performance and minimising risk, while accounting for the jump dynamics of energy prices. Moreover, the tradeoff is achieved in such way that the benefits in terms of risk reduction outweigh the loss in average performance.

Cette thèse propose des modèles et des méthodes pour étudier le contrôle du risque dans de larges systèmes financiers. Nous proposons dans une première partie une approche structurelle : nous considérons un système financier représenté comme un réseau d’institutions connectées entre elles par des interactions stratégiques sources de financement mais également par des interactions qui les exposent à un risque de contagion de défaut. La nouveauté de notre approche réside dans le fait que ces deux types d’interaction interfèrent. Nous proposons des nouvelles notions d’équilibre pour ces systèmes et étudions la connectivité optimale du réseau et le risque systémique associé. Dans une deuxième partie, nous introduisons des mesures de risque systémique définies par des équations différentielles stochastiques rétrogrades dirigées par des opérateurs à champ moyen et étudions des problèmes d’arrêt optimal associés. La dernière partie aborde des questions de liquidation optimale de portefeuilles
This thesis presents models and methodologies to understand the control of systemic risk in large systems. We propose two approaches. The first one is structural : a financial system is represented as a network of institutions. They have strategic interactions as well as direct interactions through linkages in a contagion process. The novelty of our approach is that these two types of interactions are intertwined themselves and we propose new notions of equilibria for such games and analyze the systemic risk emerging in equilibrium. The second approach is a reduced form.We model the dynamics of regulatory capital using a mean field operator : required capital depends on the standalone risk but also on the evolution of the capital of all other banks in the system. In this model, required capital is a dynamic risk measure and is represented as a the solution of a mean-field BDSE with jumps. We show a novel dual representation theorem. In the context of meanfield BSDEs the representation gives yield to a stochastic discount factor and a worst-case probability measure that encompasses the overall interactions in the system. We also solve the optimal stopping problem of dynamic risk measure by connecting it to the solution of reflected meanfield BSDE with jumps. Finally, We provide a comprehensive model for the order book dynamics and optimal Market making strategy appeared in liquidity risk problems

Cette thèse est articulée autour de trois risques financiers que sont : la liquidité, la contagion et le risque systémique. Ces derniers sont au centre de toutes les attentions depuis la crise de 2007-08 et resteront d'actualité à la vue des évènements que rencontrent les marchés financiers. Le premier chapitre de cette thèse présente un facteur de liquidité de financement obtenu par l'interprétation d'un phénomène de contagion en termes de risque de liquidité de marché. Nous proposons dans le second chapitre, une méta-mesure de cette liquidité de marché. Cette dernière tient compte de l'ensemble des dimensions présentes dans la définition de la liquidité en s'intéressant à la dynamique de plusieurs mesures de liquidité simultanément. L'objectif du troisième chapitre est de présenter une modélisation des rendements du marché permettant la prise en compte de la liquidité de financement dans l'estimation de la DCoVaR. Ainsi, ce travail propose une nouvelle mesure du risque systémique ayant un comportement contracyclique. Pour finir, nous nous intéressons à l'hypothèse de non-linéarité de la structure de dépendance entre les rendements de marché et ceux des institutions financières. Au cœur de la mesure du risque systémique, cette hypothèse apparait contraignante puisqu'elle n'a que peu d'impact sur l'identification des firmes les plus risquées mais peut compliquer considérablement l'estimation de ces mesures.

We propose a statistical model for weighted temporal networks capable of measuring the level of heterogeneity in a financial system. Our model focuses on the level of diversification of financial institutions; that is, whether they are more inclined to distribute their assets equally among partners, or if they rather concentrate their commitment towards a limited number of institutions. Crucially, a Markov property is introduced to capture time dependencies and to make our measures comparable across time. We apply the model on an original dataset of Austrian interbank exposures. The temporal span encompasses the onset and development of the financial crisis in 2008 as well as the beginnings of European sovereign debt crisis in 2011. Our analysis highlights an overall increasing trend for network homogeneity, whereby core banks have a tendency to distribute their market exposures more equally across their partners.

Thesis (Ph. D.)--University of Wisconsin--Madison, 1988.
Typescript. Vita. eContent provider-neutral record in process. Description based on print version record. Includes bibliographical references (leaves 86-89).

The correct measure and definition of liquidity in finance literature remains an unresolved empirical issue. The main objective of the present study was to develop, validate and test the liquidity mismatch index (LMI) developed by Brunnermeier, Krishnamurthy and Gorton (2012) empirically. Building on the work of these prior studies, the study undertook to develop a measure of liquidity that integrates both market liquidity and funding liquidity within a context of asset liability management. Liquidity mismatch indices were developed and then tested empirically to validate them by regressing them against the known determinants of liquidity. Furthermore, the study investigated the nexus between liquidity and profitability. The unit of analysis was a panel of 12 South African banks over the period 2005–2015. The study developed two liquidity measures – the bank liquidity mismatch index (BLMI) and the aggregate liquidity mismatch index (ALMI) – whose performances were compared to and contrasted with the Basel III liquidity measures and traditional liquidity measures using a generalised method of moments (GMM) model. Overall, the two constructed liquidity indices performed better than other liquidity measures. Significantly, the ALMI provided a better macro-prudential liquidity measure that can be utilised in dynamic stochastic general equilibrium (DSGE) models, thus presenting a major contribution to the body of knowledge. Unlike the LMI, the BLMI and ALMI can be used to evaluate the liquidity of a given bank under liquidity stress events, which are scaled by theoretically motivated and empirically supported liquidity weights. The constructed BLMI contains information regarding the liquidity risk within the context of asset liability mismatches, and the measure used comprehensive data from bank balance sheets and from financial market measures. The newly developed liquidity measures are based on portfolio management theory as they account for the significance of liquidity spirals. Empirical results show that banks increase their liquidity buffers during times of turmoil as both BLMI and ALMI improved during the period 2007–2009. Subsequently, the improvement in economic performance resulted in a rise in ALMI but a decrease in BLMI. We found no evidence to support the theory that banks, which heavily depend on external funding, end up in serious liquidity problems. The findings imply that any policy implemented with the intention of increasing bank capital is good for bank liquidity since the financial fragility–crowding-out hypothesis is outweighed by the risk absorption hypothesis because the relationship between capital and bank liquidity is positive.
Finance, Risk Management and Banking
D. Phil. (Management Studies)

The application of bank resolution mechanisms in Mozambican law is the focus of the study chosen for the dissertation on Law and Financial Markets. Analyzing and understanding the issue of resolution measures makes it essential to understand the powers and competences of the resolution entity, in this case, the Bank of Mozambique, with particular relevance to its historical evolution. It is also important to consider its purpose, concept and application, concretely, the practical fulfilment of its role under Mozambican Law, also regarding the Portuguese legal frame. As known, the Portuguese Republic is a member of the European Union and compelled to the guidelines and rules of the European Central Bank, including the Single Banking Resolution Mechanism. Due to the close ties between those country´s, Portugal has a deep impact when it comes to make political options related to the Mozambique´s financial market. Several reasons have to be considered such as, history, common language and, most important, the considerable amount of Portuguese shares capital in Mozambique’s financial market. Considering the importance of one concrete recapitalisation measure – the bail in – it seems important to think over its purpose, impact and the advantages and disadvantages of its application. A closer look to Mozambique’s reality may conclude that the adopted resolution measures have taken into account the current needs, and the international recommendations, with the aim to grant financial system stability and the protection of depositor and taxpayers.
A aplicação dos mecanismos de resolução bancária no direito moçambicano constitui, desde logo, o tema escolhido para a dissertação de mestrado em Direito e Mercados Financeiros. Analisar e compreender a temática referente às medidas de resolução, torna imprescindível a perceção dos poderes e competências da entidade de resolução, no caso concreto, do Banco de Moçambique, com especial relevância às medidas de resolução constantes do Aviso n.º 2/GBM/2013, de 29 de abril, do Governador do Banco de Moçambique. As medidas de resolução enquanto principal objeto de estudo e análise, suscitaram a necessidade de se perceber a sua finalidade, conceito e aplicação, ou seja, a concretização da sua função, sendo esta análise feita no âmbito do direito moçambicano, numa abordagem à luz do direito português. Apesar da República Portuguesa fazer parte da União Europeia e estar sujeita às regras do Banco Central Europeu, bem como do Mecanismo Único de Resolução Bancária, Portugal continua a influenciar as opções normativas, neste país africano, em razão dos laços históricos e traços linguísticos e pelo facto do sistema financeiro em Moçambique ser maioritariamente constituído por capitais portugueses. Devido à importância de uma das medidas de recapitalização interna, designada por bail in, tomou-se a decisão de refletir, de forma autónoma e especial, esta medida desde a sua finalidade, e o impacto que a mesma tem no sistema bancário, bem como as vantagens e desvantagens da sua aplicação. Olhando para o caso moçambicano, reconhece-se que as medidas de resolução vigentes têm sido adaptadas às necessidades atuais e às recomendações internacionais, com o objetivo de garantir a estabilidade do sistema financeiro e a proteção dos depositantes e contribuintes.