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12:30 - 13:30 8 May 2012

Volatility, Correlation and Tails for Systemic Risk Measurement (with Robert Engle)


IFS Seminar Room | Institute for Fiscal Studies (link Map)
7 Ridgmount Street | London | WC1E 7AE |

Open to: Academic | Student
Ticketing: Open

Speaker information

Christian Brownlees, Pompeu Fabra

In this paper we propose an empirical methodology to measure systemic risk. Building upon Acharya et al. (2010), we think of the systemic risk of a financial institution as its contribution to the total capital shortfall of the financial system that can be expected in a future crisis. We propose a systemic risk measure (SRISK) that captures the expected capital shortage of a firm given its degree of leverage and Marginal Expected Shortfall (MES). To estimate MES, we introduce a dynamic model for the market and firm returns. The model is extrapolated to estimate the equity loss of a firm in a future crisis and consequently the capital shortage that would be experienced depending on the initial leverage.


Institute for Fiscal Studies
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