Vulnerability-CoVaR: investigating the crypto-market

DOI10.1080/14697688.2022.2063166zbMATH Open1500.91148OpenAlexW4225292326MaRDI QIDQ5039634FDOQ5039634

Authors Martin Waltz, Abhay Kumar Singh, Ostap Okhrin

Publication date 30 September 2022

Published in Quantitative Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2203.10777

zbMATH Keywords

copulasystemic riskconditional value-at-riskcryptocurrency

Mathematics Subject Classification ID

Characterization and structure theory for multivariate probability distributions; copulas (62H05) Statistical methods; risk measures (91G70) Financial networks (including contagion, systemic risk, regulation) (91G45)

Abstract: This paper proposes an important extension to Conditional Value-at-Risk (CoVaR), the popular systemic risk measure, and investigates its properties on the cryptocurrency market. The proposed Vulnerability-CoVaR (VCoVaR) is defined as the Value-at-Risk (VaR) of a financial system or institution, given that at least one other institution is equal or below its VaR. The VCoVaR relaxes normality assumptions and is estimated via copula. While important theoretical findings of the measure are detailed, the empirical study analyzes how different distressing events of the cryptocurrencies impact the risk level of each other. The results show that Litecoin displays the largest impact on Bitcoin and that each cryptocurrency is significantly affected if an event of joint distress among the remaining market participants occurs. The VCoVaR is shown to capture domino effects better than other CoVaR extensions.

Recommendations

• On multivariate extensions of the conditional value-at-risk measure
• On dependence consistency of CoVaR and some other systemic risk measures
• Measuring systemic risk with CoVaR using a stock market data based approach
• On conditional value at risk (CoVaR) for tail-dependent copulas
• An application of extreme value theory to cryptocurrencies

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Cited in

(5)

• Cryptocurrency risk measurement based on MIDAS-Expectile regression model
• Assessing network risk with FRM: links with pricing kernel volatility and application to cryptocurrencies
• On joint marginal expected shortfall and associated contribution risk measures
• Generalized coefficients of clustering in (un)directed and (un)weighted networks: an application to systemic risk quantification for cryptocoin markets
• Measuring systemic risk with CoVaR using a stock market data based approach

Describes a project that uses

Uses Software

• copula
• HAC
• Rugarch
• copula
• CopulaModel

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