This study applies a novel way of measuring, quantifying and modelling the systemic risk within the financial system. The magnitude of risk spill over effects is gauged by introducing a specific weighting scheme. This approach originally stems from spatial econometrics. The methodology allows...

We derive multivariate risk-neutral asset distributions for major US financial institutions (FIs) using option implied marginal risk-neutral asset distributions (RNDs) and probabilities of default (PoDs). The multivariate densities are estimated by combining the entropy approach, dynamic copulas...

In Europe, the financial stability mandate generally rests at the national level. But there is an important exception. Since the establishment of the Banking Union in 2014, the European Central Bank (ECB) can impose stricter regulations than the national regulator. The precondition is that the...

We estimate time series of option implied Probabilities of Default (PoDs) for 19 major US financial institutions from 2002 to 2012. These PoDs are estimated as mass points of entropy based risk neutral densities and subsequently corrected for maturity dependence. The obtained time series are...

We identify the connections between financial institutions from different sectors of the financial industry based on joint extreme movements in credit default swap (CDS) spreads. First, we estimate pairwise co-crash probabilities (CCP) to identify significant connections among 193 international...

We look at the effect of capital rules on a banking system that is connected through correlated credit exposures and interbank lending. The rules, which combine individual bank characteristics and interconnectivity measures of interbank lending, are to minimize a measure of system-wide losses....

Recent literature has proposed new methods for measuring the systemic risk of financial institutions based on observed stock returns. In this paper we examine the reliability and robustness of such risk measures, focusing on CoVaR, marginal expected shortfall, and option-based tail risk...

Using a unique data set on German banks' loans to the German real economy, we investigate banks' credit risk. This data set includes the volume of loans per bank and industry as well as the corresponding write-downs. Our empirical study for the period 2003-2011 yields the following results: (i)...

This paper introduces a stress test of the corporate credit portfolios of 24 large German banks by a two-stage approach: First, a macro-econometric model is used to forecast the impact of a substantial increase of the user cost of business capital for firms worldwide on three particularly...

The US credit boom has been identified as one of the causes of the global financial crisis and the resulting debt overhang is seen as the primary reason for the weak economic recovery. Most of the existing literature links the credit boom to the emergence of the shadow banking system. This paper...