Research article Special Issues

How often is the financial market going to collapse?

  • Received: 26 March 2018 Accepted: 24 May 2018 Published: 01 August 2018
  • JEL Codes: G01, G15

  • Copula theory is used to investigate the phenomenon of extremal dependence. An analytical expression for the extremal-dependence coe cient (EDC) of regularly varying elliptically distributed random vectors is derived. The EDC represents a natural measure of systemic risk. Extreme value theory is applied in order to estimate the systemic risk of the G–7 countries. The given results are quite sensitive to the tail index of asset returns and thus a scenario analysis is conducted. In the worst case, the probability that the entire market crashes during 10 years exceeds 50%. Hence, we must not neglect the risk of a financial collapse during a relatively short period of time.

    Citation: Gabriel Frahm. How often is the financial market going to collapse?[J]. Quantitative Finance and Economics, 2018, 2(3): 590-614. doi: 10.3934/QFE.2018.3.590

    Related Papers:

  • Copula theory is used to investigate the phenomenon of extremal dependence. An analytical expression for the extremal-dependence coe cient (EDC) of regularly varying elliptically distributed random vectors is derived. The EDC represents a natural measure of systemic risk. Extreme value theory is applied in order to estimate the systemic risk of the G–7 countries. The given results are quite sensitive to the tail index of asset returns and thus a scenario analysis is conducted. In the worst case, the probability that the entire market crashes during 10 years exceeds 50%. Hence, we must not neglect the risk of a financial collapse during a relatively short period of time.


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