We propose a method for measuring the systemic importance of interconnected banks. In order to capture contributions to system-wide risk, our measure accounts fully for the extent to which a bank (i) propagates shocks across the system and (ii) is vulnerable to propagated shocks. An empirical...

Why should risk management systems account for parameter uncertainty? In addressing this question, the paper lets an investor in a credit portfolio face non-diversifiable uncertainty about two risk parameters - probability of default and asset-return correlation - and calibrates this uncertainty...