Systemic risk is the risk that the distress of one or more institutions trigger a collapseof the entire financial system. We extend CoVaR (value-at-risk conditioned on an institution)and CoCVaR (conditional value-at-risk conditioned on an institution) systemic risk contributionmeasures and propose a new CoCDaR (conditional drawdown-at-risk conditioned on an institution)measure based on drawdowns. This new measure accounts for consecutive negative returnsof a security, while CoVaR and CoCVaR combine together negative returns from different timeperiods. For instance, ten 2% consecutive losses resulting in 20% drawdown will be noticedby CoCDaR, while CoVaR and CoCVaR are not sensitive to relatively small one period losses.The proposed measure provides insights for systemic risks under extreme stresses related todrawdowns. CoCDaR and its multivariate version, mCoCDaR, estimate an impact on big cumulativelosses of the entire financial system caused by an individual firm’s distress. It can be used for rankingindividual systemic risk contributions of financial institutions (banks). CoCDaR and mCoCDaRare computed with CVaR regression of drawdowns. Moreover, mCoCDaR can be used to estimatedrawdowns of a security as a function of some other factors. For instance, we show how to performfund drawdown style classification depending on drawdowns of indices. Case study results, data,and codes are posted on the web.
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