FIRE SALES FORENSICS: MEASURING ENDOGENOUS RISK
Document type :
Compte-rendu et recension critique d'ouvrage
DOI :
Title :
FIRE SALES FORENSICS: MEASURING ENDOGENOUS RISK
Author(s) :
Cont, Rama [Auteur]
Laboratoire de Probabilités et Modèles Aléatoires [LPMA]
Wagalath, Lakshithe [Auteur]
Lille économie management - UMR 9221 [LEM]
Laboratoire de Probabilités et Modèles Aléatoires [LPMA]
Wagalath, Lakshithe [Auteur]
Lille économie management - UMR 9221 [LEM]
Journal title :
Mathematical Finance
Pages :
835-866
Publisher :
Wiley
Publication date :
2016-10
ISSN :
0960-1627
HAL domain(s) :
Sciences de l'Homme et Société/Gestion et management
English abstract : [en]
We propose a tractable framework for quantifying the impact of loss‐triggered fire sales on portfolio risk, in a multi‐asset setting. We derive analytical expressions for the impact of fire sales on the realized volatility ...
Show more >We propose a tractable framework for quantifying the impact of loss‐triggered fire sales on portfolio risk, in a multi‐asset setting. We derive analytical expressions for the impact of fire sales on the realized volatility and correlations of asset returns in a fire sales scenario and show that our results provide a quantitative explanation for the spikes in volatility and correlations observed during such deleveraging episodes. These results are then used to develop an econometric framework for the forensic analysis of fire sales episodes, using observations of market prices. We give conditions for the identifiability of model parameters from time series of asset prices, propose a statistical test for the presence of fire sales, and an estimator for the magnitude of fire sales in each asset class. Pathwise consistency and large sample properties of the estimator are studied in the high‐frequency asymptotic regime. We illustrate our methodology by applying it to the forensic analysis of two recent deleveraging episodes: the Quant Crash of August 2007 and the Great Deleveraging following the default of Lehman Brothers in Fall 2008.Show less >
Show more >We propose a tractable framework for quantifying the impact of loss‐triggered fire sales on portfolio risk, in a multi‐asset setting. We derive analytical expressions for the impact of fire sales on the realized volatility and correlations of asset returns in a fire sales scenario and show that our results provide a quantitative explanation for the spikes in volatility and correlations observed during such deleveraging episodes. These results are then used to develop an econometric framework for the forensic analysis of fire sales episodes, using observations of market prices. We give conditions for the identifiability of model parameters from time series of asset prices, propose a statistical test for the presence of fire sales, and an estimator for the magnitude of fire sales in each asset class. Pathwise consistency and large sample properties of the estimator are studied in the high‐frequency asymptotic regime. We illustrate our methodology by applying it to the forensic analysis of two recent deleveraging episodes: the Quant Crash of August 2007 and the Great Deleveraging following the default of Lehman Brothers in Fall 2008.Show less >
Language :
Anglais
Popular science :
Non
Collections :
Source :
Files
- https://hal.archives-ouvertes.fr/hal-00697224/file/ContWagalath2012.pdf
- Open access
- Access the document