Inclusive Risk Estimation and Its Contagion in the Country's Financial System with the Approach of Dynamic Conditional Correlation Model

Subject Areas : Financial engineering

Leila Barati ¹ , Mirfeiz Fallah ² , Farhad Ghafari ³ , Alireza Heidarzadeh Hanzaei ⁴

1 - Department of Financial Management, Science and Research Branch, Islamic Azad University, Tehran, Iran
2 - Department of Financial Management, Central Tehran Branch, Islamic Azad University, Tehran, Iran and member of Modern Financial Risk Research Group
3 - Department of Economics, Science and Research Branch, Islamic Azad University, Tehran, Iran.
4 - Department of Financial Management, North Tehran Branch, Islamic Azad University, Tehran, Iran

Received: 2021-10-07 Accepted : 2022-07-17 Published : 2023-09-23

Keywords: Dynamic conditional correlation, Contagion, Pervasive Risk, Financial System, Marginal Expected Loss,

Abstract :

The purpose of this paper was to assess the overall risk in various financial sectors, including banking, insurance and investment companies. Pervasive risk in general indicates the possibility of collapse of the entire financial system in a crisis. While in most cases, investors in different markets worry about losing the value of a stock or commodity and measure the risks involved, the risk is pervasive, focused on the market as a whole and likely to fall. In this study, the method of measuring changes in value at risk based on the returns of financial institutions has been used. In this study, statistical information of banks, investment companies and commercial insurances during the years 1380-1399 has been used. The results show that all three sectors during this time period are significantly involved in hedging risk in Iran and investment companies have the largest share in hedging risk, followed by segments respectively. Banking and insurance are included.