Aggregating expert knowledge for the measurement of systemic risk

A1 Journal article (refereed)


Internal Authors/Editors


Publication Details

List of Authors: József Mezei, Peter Sarlin
Publisher: ELSEVIER SCIENCE BV
Publication year: 2016
Journal: Decision Support Systems
Journal acronym: DECIS SUPPORT SYST
Volume number: 88
Start page: 38
End page: 50
Number of pages: 13
ISSN: 0167-9236


Abstract

The policy objective of safeguarding financial stability has stimulated a wave of research on systemic risk analytics, yet it still faces challenges in measurability. This paper models systemic risk by tapping into expert knowledge of financial supervisors. We decompose systemic risk into a number of interconnected segments, for which the level of vulnerability is measured. The system is modeled in the form of a Fuzzy Cognitive Map (FCM), in which nodes represent vulnerability in segments and links their interconnectedness. A main problem tackled in this paper is the aggregation of values in different interrelated nodes of the map to obtain an estimate of systemic risk. To this end, Choquet integral-based aggregation is employed to expert evaluations of measures, as it allows for the integration of interrelations among factors in the aggregation process. The approach is illustrated through two applications in a European setting. First, we provide an estimation of systemic risk with a Pan-European set-up. Second, we estimate country-level risks, allowing for a more granular decomposition. This sets a starting point for the use of the rich, oftentimes tacit, knowledge in policy organizations. (C) 2016 Elsevier B.V. All rights reserved.


Keywords

Aggregation operators, Choquet integral, Fuzzy Cognitive Maps, Systemic risk

Last updated on 2019-13-11 at 05:52