Marginal expected shortfall inference under multivariate regular variation

Simone A. Padoan; Stefano Rizzelli; Matteo Schiavone

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arXiv · 2304.07578

Marginal expected shortfall inference under multivariate regular variation

Simone A. Padoan·Stefano Rizzelli·Matteo Schiavone

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Abstract

Marginal expected shortfall is unquestionably one of the most popular systemic risk measures. Studying its extreme behaviour is particularly relevant for risk protection against severe global financial market downturns. In this context, results of statistical inference rely on the bivariate extreme values approach, disregarding the extremal dependence among a large number of financial institutions that make up the market. In order to take it into account we propose an inferential procedure based on the multivariate regular variation theory. We derive an approximating formula for the extreme marginal expected shortfall and obtain from it an estimator and its bias-corrected version. Then, we show their asymptotic normality, which allows in turn the confidence intervals derivation. Simulations show that the new estimators greatly improve upon the performance of existing ones and confidence intervals are very accurate. An application to financial returns shows the utility of the proposed inferential procedure. Statistical results are extended to a general $\beta$-mixing context that allows to work with popular time series models with heavy-tailed innovations.

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Simone A. Padoan, Stefano Rizzelli, Matteo Schiavone. 2023-04-15. Marginal expected shortfall inference under multivariate regular variation. https://arxiv.org/abs/2304.07578

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