Cagin Ararat: Systemic Values-at-Risk: Computation and Convergence

Prof. Cagin Ararat (Bilkent University):

Title: Systemic Values-at-Risk: Computation and Convergence

Abstract:
We investigate the convergence properties of sample-average approximations (SAA) for set-valued systemic risk measures. We assume that the systemic risk measure is defined using a general aggregation function with some continuity properties and value-at-risk applied as a monetary risk measure. Our focus is on the theoretical convergence of its SAA under Wijsman and Hausdorff topologies for closed sets. After building the general theory, we provide an in-depth study of an important special case where the aggregation function is defined based on the Eisenberg-Noe network model. In this case, we provide mixed-integer programming formulations for calculating the SAA sets via their weighted-sum and norm-minimizing scalarizations. To demonstrate the applicability of our findings, we conduct a comprehensive sensitivity analysis by generating a financial network based on the preferential attachment model and modeling the economic disruptions via a Pareto distribution.