Stress Testing German Industry Sectors: Results from a Vine Copula Based Quantile Regression
AbstractMeasuring interdependence between probabilities of default (PDs) in different industry sectors of an economy plays a crucial role in financial stress testing. Thereby, regression approaches may be employed to model the impact of stressed industry sectors as covariates on other response sectors. We identify vine copula based quantile regression as an eligible tool for conducting such stress tests as this method has good robustness properties, takes into account potential nonlinearities of conditional quantile functions and ensures that no quantile crossing effects occur. We illustrate its performance by a data set of sector specific PDs for the German economy. Empirical results are provided for a rough and a fine-grained industry sector classification scheme. Amongst others, we confirm that a stressed automobile industry has a severe impact on the German economy as a whole at different quantile levels whereas, e.g., for a stressed financial sector the impact is rather moderate. Moreover, the vine copula based quantile regression approach is benchmarked against both classical linear quantile regression and expectile regression in order to illustrate its methodological effectiveness in the scenarios evaluated. View Full-Text
Scifeed alert for new publicationsNever miss any articles matching your research from any publisher
- Get alerts for new papers matching your research
- Find out the new papers from selected authors
- Updated daily for 49'000+ journals and 6000+ publishers
- Define your Scifeed now
Fischer, M.; Kraus, D.; Pfeuffer, M.; Czado, C. Stress Testing German Industry Sectors: Results from a Vine Copula Based Quantile Regression. Risks 2017, 5, 38.
Fischer M, Kraus D, Pfeuffer M, Czado C. Stress Testing German Industry Sectors: Results from a Vine Copula Based Quantile Regression. Risks. 2017; 5(3):38.Chicago/Turabian Style
Fischer, Matthias; Kraus, Daniel; Pfeuffer, Marius; Czado, Claudia. 2017. "Stress Testing German Industry Sectors: Results from a Vine Copula Based Quantile Regression." Risks 5, no. 3: 38.
Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.