Abstract
The systemic risk is undoubtedly an important concept employed in the framework of modern risk regulatory systems as are Basel III in finance or Solvency II in insurance. This contribution primarily concentrates on a particular quantitative approach to measuring the systemic risk, which seems to be a significant risk in today's financial world (not solely in banks and insurance companies).
The marginal expected shortfall measure is based on the well-known concept of the expected shortfall. More specifically, it can be regarded as a conditional version of the expected shortfall in which the global returns exceed a given market drop.
We shall demonstrate that the marginal expected shortfall is a useful risk measure when studying the Prague Stock Exchange index and all its constituents. The corresponding modelling scheme is introduced and discussed.
It is extended in such a way that one can describe time-varying dependencies using the multivariate GARCH modelling class. Moreover, such an econometric approach enables to forecast the capital shortfall over a potentially long period (e.g. a quarter or half year), which might be appreciated in financial and insurance practice.