The kiss of information theory that captures systemic risk

Peter Martey Addo (1) , Philippe de Peretti (1) , Hayette Gatfaoui (2) , Jakob Runge (3, 4)

1 CES - Centre d'économie de la Sorbonne
2 NEOMA - Neoma Business School
3 PIK - Potsdam Institute for Climate Impact Research
4 Department of Physics [Berlin]

We provide a new approach to understanding systemic risk by analysing complex linkages in finance and insurance sectors. The analysis is achieved by using a recently proposed method for quantifying causal coupling strength, which identifies the existence of causal dependencies between two components of a multivariate time series and assesses the strength of their association by defining a meaningful coupling strength. The measure of association is general, causal and lag-specific, reflecting a well interpretable notion of coupling strength and is pratically computable. A comprehensive analysis of the feasibility of this approach is provided via simulated and real data.

Mots clés: systemic risk; causal dependencies; financial institutions; linkages; Sovereign debt

Domaines: Economies et finances; Méthodes et statistiques

Peter Martey Addo, Philippe de Peretti, Hayette Gatfaoui, Jakob Runge. The kiss of information theory that captures systemic risk. 2014. ⟨hal-01110712v2⟩