Title: Quantifying effects of extreme events with applications to financial crises
Authors: Ostap Okhrin - Dresden University of Technology (Germany)
Jeffrey Sheen - Macquarie University (Australia)
Stefan Trueck - Macquarie University (Australia)
Alexander Ristig - University of Vienna (Austria) [presenting]
Abstract: The aim is to address the quantification of effects from an extreme outcome in an explanatory variable on a dependent variable. The effect is approximated with the so-called asymptotic elasticity of a conditional quantile function, linking the dependent and explanatory variable. A closed form expression for this asymptotic elasticity is presented under reasonable assumptions on the relation between explanatory and dependent variable. By interpreting the asymptotic elasticity as a spill-over measure for tail-risk, we detect statistically significant effects from Lehman Brothers to other financial institutions during the subprime mortgage crisis before Lehman Brothers was obviously in distress. Likewise, the effect from a credit default in case of Greece on the solvency of countries within the Euro-area is briefly studied.