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Article

Measuring and Allocating Systemic Risk

1
Department of Economics and Bendheim Center for Finance, Princeton University, Princeton, NJ 08544, USA
2
Department of Mathematics and RiskLab, ETH Zurich, 8092 Zurich, Switzerland
*
Author to whom correspondence should be addressed.
Risks 2019, 7(2), 46; https://doi.org/10.3390/risks7020046
Received: 26 November 2018 / Revised: 13 April 2019 / Accepted: 16 April 2019 / Published: 26 April 2019
In this paper, we develop a framework for measuring, allocating and managing systemic risk. SystRisk, our measure of total systemic risk, captures the a priori cost to society for providing tail-risk insurance to the financial system. Our allocation principle distributes the total systemic risk among individual institutions according to their size-shifted marginal contributions. To describe economic shocks and systemic feedback effects, we propose a reduced form stochastic model that can be calibrated to historical data. We also discuss systemic risk limits, systemic risk charges and a cap and trade system for systemic risk. View Full-Text
Keywords: systemic risk measure; systemic risk allocation; feedback effects; shadow prices; systemic risk limits; systemic risk charges; cap and trade systemic risk measure; systemic risk allocation; feedback effects; shadow prices; systemic risk limits; systemic risk charges; cap and trade
MDPI and ACS Style

Brunnermeier, M.K.; Cheridito, P. Measuring and Allocating Systemic Risk. Risks 2019, 7, 46. https://doi.org/10.3390/risks7020046

AMA Style

Brunnermeier MK, Cheridito P. Measuring and Allocating Systemic Risk. Risks. 2019; 7(2):46. https://doi.org/10.3390/risks7020046

Chicago/Turabian Style

Brunnermeier, Markus K., and Patrick Cheridito. 2019. "Measuring and Allocating Systemic Risk" Risks 7, no. 2: 46. https://doi.org/10.3390/risks7020046

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