We propose a novel approach to calibrate the conditional value-at-risk (CoVaR) of financial institutions based on neural network quantile regression. Building on the estimation results, we model systemic risk spillover effects in a network context across banks by considering the marginal effects of the quantile regression procedure. An out-of-sample analysis shows great performance compared to a linear baseline specification, signifying the importance that nonlinearity plays for modelling systemic risk. We then propose three network-based measures from our fitted results. First, we use the Systemic Network Risk Index (SNRI) as a measure for total systemic risk. A comparison to existing network-based risk measures reveals that our approach offers a new perspective on systemic risk due to the focus on the lower tail and to the allowance for nonlinear effects. We also introduce the Systemic Fragility Index (SFI) and the Systemic Hazard Index (SHI) as firm-specific measures, which allow us to identify systemically relevant firms during the financial crisis.
|Early online date||19 Jan 2021|
|Publication status||E-pub ahead of print - 19 Jan 2021|