Asymptotics for Systemic Risk With Dependent Heavy-Tailed Losses

Abstract

Systemic risk (SR) is considered as the risk of collapse of an entire system, which has played a significant role in explaining the recent financial turmoils from the insurance and financial industries. We consider the asymptotic behavior of the SR for portfolio losses in the model allowing for heavy-tailed primary losses, which are equipped with a wide type of dependence structure. This risk model provides an ideal framework for addressing both heavy-tailedness and dependence. As some extensions, several simulation experiments are conducted, where an insurance application of the asymptotic characterization to the determination and approximation of related SR capital has been proposed, based on the SR measure.

On the tail behavior for randomly weighted sums of dependent random variables with its applications to risk measures

“…The analytic expression of SR is usually difficult to obtain, and thus we aim to derive the asymptotic formula of SR as q ↑ 1. We refer the reader to Chen and Liu (2022) [6], Li (2022) [26], Liu and Yang (2021) [28], and Tang and Yuan (2014) [36] for the asymptotic analysis which contributed meaningful insight to our study. Theorem 3.1.…”

“…No matter how, the primary objective is to assess the financial distress of a system caused by the collapse of a specific component within the financial system under consideration. In this paper, we study the SR formulated by Asimit and Li (2018a) [3] or Liu and Yang (2021) [28].…”

A Study of Systemic Financial Risk Prediction Models in the Insurance Industry

“…In this crisis, the world's largest insurance group, AIG, was on the verge of bankruptcy, and the group was able to escape from the situation only after the federal government gave it a helping hand due to systemic security considerations [2][3]. Prior to this, it was widely recognized in the academic community that the insurance industry is not prone to systemic financial risk and that the traditional insurance business makes the insurance industry have a different level of indebtedness compared to other sectors, coupled with the fact that conventional insurance companies have a low degree of affiliation with other financial institutions, so it is usually believed that the insurance industry has a lower level of systemic financial risk than the banking industry [4][5]. Systemic financial risk generally refers to the risk that financial institutions in the financial market are affected by some external shocks or internal uncontrollable factors, which leads to a chain of crises in the whole market and causes significant economic losses [6][7].…”