Measuring Systemic Risk

As long as human behavior is coupled with free enterprise, it is unrealistic to expect that market crashes, manias, panics, collapses, and fraud will ever be completely eliminated from our capital markets. The best hope for avoiding some of the most disruptive consequences of such crises is to develop methods for measuring, monitoring, and anticipating them. By using a broad array of tools for gauging systemic exposures, we stand a better chance of identifying “black swans” when they are still cygnets.

Measuring Systemic Risk in the Finance and Insurance Sectors
Monica Billio, Mila Getmansky, Andrew W. Lo, and Loriana Pelizzon