Central bank research hub - Papers by Chen Zhou
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Research hub papers by author Chen ZhouenOutlier detection in TARGET2 risk indicators
https://www.dnb.nl/en/binaries/Working%20paper%20No.%20624_tcm47-382055.pdf
Netherlands Bank DNB Working Papers by Ronald Heijmans and Chen ZhouOutlier detection in TARGET2 risk indicators2019-02-01T00:00:24ZThis paper studies the detection of outliers in risk indicators based on large value payment system transaction data. The ten risk indicators are daily time series measuring various risks in the large value payment system, such as operational risk, concentration risk and liquidity flows related to other financial market infrastructures. We use extreme value theory and local outlier factor methods to identify anomalous data points (outliers). In a univariate setup, the extreme value analysis quantifies the unusualness of each outlier. In a multivariate setup, the local outlier factor method identifies outliers by measuring the local deviation of a given data point with respect to its neighbours. We find that most detected outliers are at the beginning and near end of the calendar month when turnover is significantly larger than at other days. Our method can be used e.g. by overseers and financial stability experts who wish to look at many (risk) indicators in relation to each other.Outlier detection in TARGET2 risk indicatorsFull texthttps://www.dnb.nl/en/binaries/Working%20paper%20No.%20624_tcm47-382055.pdfChen ZhouRonald HeijmansRonald Heijmans and Chen Zhou2019-02Netherlands Bank DNB Working PapersE42E50E58E59Value-at-Risk prediction using option-implied risk measures
https://www.dnb.nl/en/binaries/Working%20Paper%20No.%20613_tcm47-379849.pdf
Netherlands Bank DNB Working Papers by Kai Schindelhauer and Chen ZhouValue-at-Risk prediction using option-implied risk measures2018-10-01T00:00:13ZThis paper investigates the prediction of Value-at-Risk (VaR) using option-implied information obtained by the maximum entropy method. The maximum entropy method provides an estimate of the risk-neutral distribution based on option prices. Besides commonly used implied volatility, we obtain implied skewness, kurtosis and quantile from the estimated risk-neutral distribution. We find that using the implied volatility and implied quantile as explanatory variables significantly outperforms considered benchmarks in predicting the VaR, including the commonly used GARCH(1,1)-model. This holds for all considered VaR prediction models and VaR probability levels. Overall, a simple quantile regression model performs best for all considered VaR probability levels and forecast horizons.Value-at-Risk prediction using option-implied risk measuresFull texthttps://www.dnb.nl/en/binaries/Working%20Paper%20No.%20613_tcm47-379849.pdfChen ZhouKai SchindelhauerKai Schindelhauer and Chen Zhou2018-10Netherlands Bank DNB Working PapersC14G17Entropy-based implied moments
https://www.dnb.nl/en/binaries/Working%20Paper%20No.%20581_tcm47-370367.pdf
Netherlands Bank DNB Working Papers by Xiao Xiao and Chen ZhouEntropy-based implied moments2017-12-01T00:58:01ZThis paper investigates the maximum entropy method for estimating the option implied volatility, skewness and kurtosis.The maximum entropy method allows for non-parametric estimation of the risk neutral distribution and construction of confidence intervals around the implied volatility. Numerical study shows that the maximum entropy method outperforms the existing methods such as the Black-Scholes model and model-free method when the underlying risk neutral distribution exhibits heavy tail and skewness. By applying this method to the S 500 index options, we find that the entropy-based implied volatility outperforms the Black-Scholes implied volatility and model-free implied volatility, in terms of in-sample fit and out-of-sample predictive power. The differences between entropy based and model-free implied moments can be explained by the level of the higher-order implied moments of the underlying distribution.Entropy-based implied momentsFull texthttps://www.dnb.nl/en/binaries/Working%20Paper%20No.%20581_tcm47-370367.pdfChen ZhouXiao XiaoXiao Xiao and Chen Zhou2017-12Netherlands Bank DNB Working PapersC14G13G17Estimating Systematic Risk Under Extremely Adverse Market Conditions
http://www.bankofcanada.ca/wp-content/uploads/2016/05/swp2016-22.pdf
Bank of Canada Working papers by Maarten van Oordt and Chen ZhouEstimating Systematic Risk Under Extremely Adverse Market Conditions2016-05-05T06:21:59ZThis paper considers the problem of estimating a linear model between two heavy-tailed variables if the explanatory variable has an extremely low (or high) value. We propose an estimator for the model coefficient by exploiting the tail dependence between the two variables and prove its asymptotic properties.Estimating Systematic Risk Under Extremely Adverse Market ConditionsAbstracthttp://www.bankofcanada.ca/2016/05/staff-working-paper-2016-22/Full texthttp://www.bankofcanada.ca/wp-content/uploads/2016/05/swp2016-22.pdfChen ZhouMaarten R.C. van OordtMaarten van Oordt and Chen Zhou2016-05-04Bank of Canada Working PapersC1C14G0G1Deflation risk in the euro area and central bank credibility
http://www.dnb.nl/en/binaries/Working%20paper%20509_tcm47-339846.pdf
Netherlands Bank DNB Working Papers by Gabriele Galati, Zion Gorgi, Richhild Moessner and Chen ZhouDeflation risk in the euro area and central bank credibility2016-04-05T12:39:59ZThis paper investigates how the perceived risk that the euro area will experience deflation has evolved over time, and what this risk implies for the credibility of the ECB. We use a novel dataset on market participants perceptions of short- to long-term deflation risk implied by year-on-year options on forward inflation swaps. We investigate whether long-term inflation expectations have become de-anchored, by studying whether long-term deflation risk has been affected by changes in oil prices and by short-term deflation risk. Our analysis suggests that the anchoring properties of euro area inflation expectations have weakened, albeit in a still subtle way. Deflation risk in the euro area and central bank credibilityAbstracthttp://www.dnb.nl/en/news/dnb-publications/dnb-working-papers-series/dnb-working-papers/working-papers-2016/dnb339847.jspFull texthttp://www.dnb.nl/en/binaries/Working%20paper%20509_tcm47-339846.pdfChen ZhouGabriele GalatiRichhild MoessnerZion GorgiGabriele Galati, Zion Gorgi, Richhild Moessner and Chen Zhou2016-04-05Netherlands Bank DNB Working PapersE31E44E52E58Why risk is so hard to measure
http://www.dnb.nl/en/binaries/Working%20Paper%20494_tcm47-335899.pdf
Netherlands Bank DNB Working Papers by Jon Danielsson and Chen ZhouWhy risk is so hard to measure2016-01-06T06:17:59ZThis paper analyses the accuracy and reliability of standard techniques for risk analysis used by the financial industry as well as in regulations. We focus on the difference between valueatrisk and expected shortfall, the small sample properties of these risk measures and the impact of using an overlapping approach to construct data for longer holding periods. Overall, we find that risk forecasts are extremely uncertain at low sample sizes. By comparing the estimation uncertainty, we find that valueatrisk is superior to expected shortfall and the time-scaling approach for risk forecasts with longer holding periods is preferable to using overlapping data. Why risk is so hard to measureAbstracthttp://www.dnb.nl/en/news/dnb-publications/dnb-working-papers-series/dnb-working-papers/working-papers-2016/dnb335907.jspFull texthttp://www.dnb.nl/en/binaries/Working%20Paper%20494_tcm47-335899.pdfChen ZhouJon DanielssonJon Danielsson and Chen Zhou2016-01-05Netherlands Bank DNB Working PapersC10C15G18Systemic risk of European banks: Regulators and markets
http://www.dnb.nl/en/onderzoek-2/publications/dnb-working-paper-series/index.jsp
Netherlands Bank DNB Working Papers by Maarten van Oordt and Chen ZhouSystemic risk of European banks: Regulators and markets2015-07-22T12:33:00ZRules and regulations may have different impacts on risk-taking by individual banks and on banks systemic risk levels. That is why implementing prudential rules and policies requires careful consideration of their impact on bank risk and systemic risk. This chapter assesses whether market-based measures of systemic risk and recent regulatory indicators provide similar rankings on the systemically importance of large European banks. We find evidence that regulatory indicators of systemic importance are positively related to systemic risk. In particular, banks with higher scores on regulatory indicators have a stronger link to the system in the event of financial stress, rather than having a higher level of bank risk. Systemic risk of European banks: Regulators and marketsAbstracthttp://www.dnb.nl/en/news/dnb-publications/dnb-working-papers-series/dnb-working-papers/working-papers-2015/dnb324617.jspFull texthttp://www.dnb.nl/en/binaries/Working%20Paper%20478_tcm47-324614.pdfChen ZhouMaarten R.C. van OordtMaarten van Oordt and Chen Zhou2015-07-21Netherlands Bank DNB Working PapersG01G11G21Systemic risk and bank business models
http://www.dnb.nl/en/binaries/Working%20Paper%20442_tcm47-313480.pdf
Netherlands Bank DNB Working Papers by Maarten van Oordt and Chen ZhouSystemic risk and bank business models2014-10-13T17:32:59ZIn this study we disentangle two dimensions of banks systemic risk: the level of bank tail risk and the linkage between a banks tail risk and severe shocks in the financial system. We employ a measure of the systemic risk of financial institutions that can be decomposed into two subcomponents reflecting these dimensions. Empirically, we show quantitatively how bank characteristics are related to bank tail risk and systemic linkage. The interrelationship between bank characteristics and these dimensions determine the relation between bank characteristics and systemic risk. Certain characteristics that are irrelevant to the soundness of a financial institution taken in isolation turn out to be important for the level of systemic risk, and vice versa. Our analytical framework helps to evaluate differences in direction and scope of policy under the micro- and macro-prudential objectives of regulation. Systemic risk and bank business modelsAbstracthttp://www.dnb.nl/en/publications/dnb-publications/dnb-working-papers-series/dnb-working-papers/working-papers-2014/dnb313484.jspFull texthttp://www.dnb.nl/en/binaries/Working%20Paper%20442_tcm47-313480.pdfChen ZhouMaarten R.C. van OordtMaarten van Oordt and Chen Zhou2014-10Netherlands Bank DNB Working PapersG10G21G28Systematic tail risk
http://www.dnb.nl/en/binaries/Working%20Paper%20400_tcm47-299052.pdf
Netherlands Bank DNB Working Papers by Maarten van Oordt and Chen ZhouSystematic tail risk2013-12-12T17:54:00ZWe test for the presence of a systematic tail risk premium in the cross-section of expected returns by applying a measure on the sensitivity of assets to extreme market downturns, the tail beta. Empirically, historical tail betas help to predict the future performance of stocks under extreme market downturns. During a market crash, stocks with historically high tail betas suffer losses that are approximately 2 to 3 times larger than their low tail beta counterparts. However, we find no evidence of a premium associated with tail betas. The theoretically additive and empirically persistent tail betas can help to assess portfolio tail risks. Systematic tail riskAbstracthttp://www.dnb.nl/en/publications/dnb-publications/dnb-working-papers-series/dnb-working-papers/working-papers-2013/dnb299057.jspFull texthttp://www.dnb.nl/en/binaries/Working%20Paper%20400_tcm47-299052.pdfChen ZhouMaarten R.C. van OordtMaarten van Oordt and Chen Zhou2013-12-12Netherlands Bank DNB Working PapersLooking at the tail: price-based measures of systemic importance
http://www.bis.org/publ/qtrpdf/r_qt1306g.htm
Bank for International Settlements Quarterly Review by Chen Zhou and Nikola TarashevLooking at the tail: price-based measures of systemic importance2013-06-03T11:38:59ZLooking at the tail: price-based measures of systemic importanceBISAbstracthttp://www.bis.org/publ/qtrpdf/r_qt1306g.htmChen ZhouNikola A TarashevChen Zhou and Nikola Tarashev2013-06Bank for International Settlements BIS Quarterly ReviewSystemic Risk Allocation for Systems with A Small Number of Banks
http://www.dnb.nl/en/binaries/Working%20Paper%20378_tcm47-291376.pdf
Netherlands Bank DNB Working Papers by Xiao Qin and Chen ZhouSystemic Risk Allocation for Systems with A Small Number of Banks2013-05-31T07:10:00ZThis paper provides a new estimation method for the marginal expected shortfall (MES) based on multivariate extreme value theory. In contrast to previous studies, the method does not assume specific dependence structure among bank equity returns and is applicable to both large and small systems. Furthermore, our MES estimator inherits the theoretical additive property. Thus, it serves as a tool to allocate systemic risk. We apply the proposed method to 29 global systemically important financial institutions (G-SIFIs) to evaluate the cross sections and dynamics of the systemic risk allocation. We show that allocating systemic risk according to either size or individual risk is imperfect and can be unfair. Between the allocation with respect to individual risk and that with respect to size, the former is less unfair. On the time dimension, both allocation fairness across all the G-SIFIs has decreased since 2008. Systemic Risk Allocation for Systems with A Small Number of BanksAbstracthttp://www.dnb.nl/en/publications/dnb-publications/dnb-working-papers-series/dnb-working-papers/working-papers-2013/dnb291383.jspFull texthttp://www.dnb.nl/en/binaries/Working%20Paper%20378_tcm47-291376.pdfChen ZhouXiao QinXiao Qin and Chen Zhou2013-05-22Netherlands Bank DNB Working PapersIdentifying systemically important financial institutions: size and other determinants
http://www.dnb.nl/en/publications/dnb-publications/dnb-working-papers-series/dnb-working-papers/working-papers-2012/dnb275657.jsp
Netherlands Bank DNB Working Papers by Kyle Moore and Chen ZhouIdentifying systemically important financial institutions: size and other determinants2012-07-12T17:38:59ZIdentifying systemically important financial institutions: size and other determinantsAbstracthttp://www.dnb.nl/en/publications/dnb-publications/dnb-working-papers-series/dnb-working-papers/working-papers-2012/dnb275657.jspFull texthttp://www.dnb.nl/en/binaries/Working%20Paper%20347_tcm47-275648.pdfChen ZhouKyle MooreKyle Moore and Chen Zhou2012-07-12Netherlands Bank DNB Working PapersG01G21G28Have market views on the sustainability of fiscal burdens influenced monetary authorities' credibility?
http://www.dnb.nl/en/publications/dnb-publications/dnb-working-papers-series/dnb-working-papers/working-papaers-2011/dnb256297.jsp
Netherlands Bank DNB Working Papers by Gabriele Galati, John Lewis, Steven Poelhekke and Chen ZhouHave market views on the sustainability of fiscal burdens influenced monetary authorities' credibility?2011-08-03T17:38:00ZHave market views on the sustainability of fiscal burdens influenced monetary authorities' credibility?Abstracthttp://www.dnb.nl/en/publications/dnb-publications/dnb-working-papers-series/dnb-working-papers/working-papaers-2011/dnb256297.jspChen ZhouJohn LewisGabriele GalatiSteven PoelhekkeGabriele Galati, John Lewis, Steven Poelhekke and Chen Zhou2011-08-03Netherlands Bank DNB Working PapersThe simple econometrics of tail dependence May 2011
http://www.dnb.nl/en/binaries/working%20paper%20296_tcm47-252480.pdf
Netherlands Bank DNB Working Papers by Maarten R.C. van Oordt and Chen ZhouThe simple econometrics of tail dependence May 20112011-05-23T12:37:59ZThe aim of this paper is to show that measures on tail dependence can be estimated in a convenient way by regression analysis. This yields the same estimates as the non-parametric method within the multivariate Extreme Value Theory framework. The advantage of the regression approach is contained by its straightforward extension to the estimation of higher dimensional tail dependence. We provide an example on international stock markets. The regression approach to tail dependence can be applied to estimate several measures of systemic importance of financial institutions in the literature. Keywords: Tail dependence, Regression analysis, Extreme Value Theory, Systemic risk. JEL Classification Numbers: C14, C58.The simple econometrics of tail dependence May 2011Full texthttp://www.dnb.nl/en/binaries/working%20paper%20296_tcm47-252480.pdfMaarten R.C. van OordtChen ZhouMaarten R.C. van Oordt and Chen Zhou2011-05Netherlands Bank DNB Working PapersSystematic risk under extremely adverse market conditions March 2011
http://www.dnb.nl/en/binaries/Working%20Paper%20281_tcm47-248344.pdf
Netherlands Bank DNB Working Papers by Maarten van Oordt and Chen ZhouSystematic risk under extremely adverse market conditions March 20112011-03-03T17:36:59ZExtreme losses are the major concern in risk management. The dependence between financial assets and the market portfolio changes under extremely adverse market conditions. We develop a measure of systematic tail risk, the tail regression beta , defined by an asset's sensitivity to large negative market shocks, and establish the estimation methodology. We compare it to regular systematic risk measures: the market beta and the downside beta. Furthermore, the tail regression beta is a useful instrument in both portfolio risk management and systemic risk management. We demonstrate its applications in analyzing Value-at-Risk (VaR) and Conditional Value-at-Risk (CoVaR). Keywords: Tail regression beta, downside risk, Extreme Value Theory, tail dependence, risk management. JEL Classification : C14, G11.Systematic risk under extremely adverse market conditions March 2011Full texthttp://www.dnb.nl/en/binaries/Working%20Paper%20281_tcm47-248344.pdfChen ZhouMaarten R.C. van OordtMaarten van Oordt and Chen Zhou2011-03Netherlands Bank DNB Working PapersDid the Crisis Affect Inflation Expectations?
http://www.ijcb.org/journal/ijcb11q1a8.pdf
IJCB International Journal of Central Banking by Gabriele Galati, Steven Poelhekke, and Chen ZhouDid the Crisis Affect Inflation Expectations?2011-02-28T17:40:59ZWe investigate whether the anchoring properties of longrun inflation expectations in the United States, the euro area, and the United Kingdom have changed around the economic crisis that erupted in mid-2007. We document that surveybased measures of long-run inflation expectations remained fairly stable around 2 percent in the euro area, fluctuated above 2 percent in the United States, and drifted up to about 2.5 percent in the United Kingdom. Expectations measures extracted from inflation-indexed bonds and inflation swaps became much more volatile in 2007. Moreover, structural break tests show that their sensitivity to news about inflation and other domestic macroeconomic variables-a measure of anchoring-increased during the crisis, and in particular during the heightened turmoil triggered by the collapse of Lehman Brothers. While liquidity premia and technical factors have significantly influenced the behavior of inflation-indexed markets since the outburst of the crisis, we show that these factors did not contaminate the relationship between macroeconomic news and financial market-based inflation expectations at the daily frequency. While our evidence is consistent with the idea that long-run inflation expectations may have become less firmly anchored during the crisis, problems in measuring expectations accurately make it difficult to draw definitive conclusions.Did the Crisis Affect Inflation Expectations?Abstracthttp://www.ijcb.org/journal/ijcb11q1a8.htmFull texthttp://www.ijcb.org/journal/ijcb11q1a8.pdfChen ZhouGabriele GalatiSteven PoelhekkeGabriele Galati, Steven Poelhekke, and Chen Zhou2011-02IJCB International Journal of Central BankingWhy the micro-prudential regulation fails? The impact on systemic risk by imposing a capital requirement
http://www.dnb.nl/en/binaries/Working%20paper%20256_tcm47-237509.pdf
Netherlands Bank DNB Working Papers by Chen ZhouWhy the micro-prudential regulation fails? The impact on systemic risk by imposing a capital requirement2010-08-05T17:42:59ZThis paper studies why the micro-prudential regulations fails to maintain a stable financial system by investigating the impact of micro-prudential regulation on the systemic risk in a cross-sectional dimension. We construct a static model for risk-taking behavior of financial institutions and compare the systemic risks in two cases with and without a capital requirement regulation. In a system with a capital requirement regulation, the individual risk-taking of the financial institutions are lower, whereas the systemic linkage within the system is higher. With a proper systemic risk measure combining both individual risks and systemic linkage, we find that, under certain circumstance, the systemic risk in a regulated system can be higher than that in a regulation-free system. We discuss a sufficient condition under which the systemic risk in a regulated system is always lower. Since the condition is based on comparing balance sheets of all institutions in the system, it can be verified only if information on risk-taking behaviors and capital structures of all institutions are available. This suggests that a macro-prudential framework is necessary for establishing banking regulations towards the stability of the financial system as a whole. Keywords: Banking regulation, systemic risk, capital requirement, macro-prudential regulation. JEL Classification: G01, G28, G32.Why the micro-prudential regulation fails? The impact on systemic risk by imposing a capital requirementFull texthttp://www.dnb.nl/en/binaries/Working%20paper%20256_tcm47-237509.pdfChen ZhouChen Zhou2010-08Netherlands Bank DNB Working PapersG01G28G32Are banks too big to fail?
http://www.dnb.nl/en/binaries/232%20-%20Are%20banks%20too%20big%20to%20fail_tcm47-227923.pdf
Netherlands Bank DNB Working Papers by Chen ZhouAre banks too big to fail?2010-01-28T12:43:00ZAbstract We consider three measures on the systemic importance of a financial institu- tion within a interconnected financial system. Based on the measures, we study the relation between the size of a financial institution and its systemic importance. From both theo- retical model and empirical analysis, we find that in analyzing the systemic risk posed by one financial institution to the system, size should not be considered as a proxy of systemic importance. In other words, the "too big to fail" argument is not always valid, and alter- native measures on systemic importance should be considered. We provide the estimation methodology of systemic importance measures under the multivariate Extreme Value Theory (EVT) framework. Keywords: Too big to fail; systemic risk; systemic importance; multivariate extreme value theory. JEL Classification Numbers: G21; C14.Are banks too big to fail?Full texthttp://www.dnb.nl/en/binaries/232%20-%20Are%20banks%20too%20big%20to%20fail_tcm47-227923.pdfChen ZhouChen Zhou2010-01Netherlands Bank DNB Working PapersThe power of weather
http://www.dnb.nl/en/binaries/236%20-%20The%20power%20of%20weather_tcm47-227927.pdf
Netherlands Bank DNB Working Papers by Christian Huurman, Francesco Ravazzolo and Chen ZhouThe power of weather2010-01-28T12:43:00ZThis paper examines the predictive power of weather for electricity prices in day- ahead markets in real time. We find that next-day weather forecasts improve the forecast accuracy of Scandinavian day-ahead electricity prices substantially in terms of point forecasts, suggesting that weather forecasts can price the weather premium. This improvement strengthens the confidence in the forecasting model, which results in high center-mass predictive densities. In density forecast, such a predictive density may not accommodate forecasting uncertainty well. Our density forecast analysis confirms this intuition by showing that incorporating weather forecasts in density forecasting does not deliver better density forecast performances. Key words: Electricity prices, weather forecasts, point and density forecasts, GARCH models. JEL Classification Code: C53, G15, Q40.The power of weatherFull texthttp://www.dnb.nl/en/binaries/236%20-%20The%20power%20of%20weather_tcm47-227927.pdfChristian HuurmanChen ZhouFrancesco RavazzoloChristian Huurman, Francesco Ravazzolo and Chen Zhou2010-01Netherlands Bank DNB Working PapersDid the crisis affect inflation expectations?
http://www.dnb.nl/en/binaries/Working%20paper%20222_tcm47-222709.pdf
Netherlands Bank DNB Working Papers by Gabriele Galati, Steven Poelhekke and Chen ZhouDid the crisis affect inflation expectations?2009-10-01T12:00:00ZWe investigate whether the anchoring properties of long-run inflation expectations in the United States, the euro area and the United Kingdom have changed around the economic crisis that erupted in mid-2007. We document that in these three economies, expectations measures extracted from inflation-indexed bonds and inflation swaps became much more volatile in 2007. Moreover, their sensitivity to news about inflation and other domestic macroeconomic variables ¿ a measure of anchoring ¿ increased first during the oil price rally in 2006¿07, and then during the heightened turmoil triggered by the collapse of Lehman Brothers. Liquidity premia and technical factors have significantly influenced the behaviour of inflation-indexed markets since the outburst of the crisis. We show, however, that these factors did not contaminate the relationship between macroeconomic news and financial market-based inflation expectations at the daily frequency. By testing for structural breaks we conclude that in the United States, the euro area and the United Kingdom, long-run inflation expectations have become less firmly anchored during the crisis.JEL Classification: E31, E44, E52, E58.Key words: monetary policy, inflation and inflation compensation, anchors for expectations, crisis, liquidity.Did the crisis affect inflation expectations?Full texthttp://www.dnb.nl/en/binaries/Working%20paper%20222_tcm47-222709.pdfSteven PoelhekkeGabriele GalatiChen ZhouGabriele Galati, Steven Poelhekke and Chen Zhou2009-09Netherlands Bank DNB Working PapersE31E44E52E58Dependence structure of risk factors and diversification effects
http://www.dnb.nl/en/binaries/Working%20Paper%20219-2009_tcm47-220795.pdf
Netherlands Bank DNB Working Papers by Chen ZhouDependence structure of risk factors and diversification effects2009-08-01T12:00:00ZIn this paper, we study the aggregated risk from dependent risk factors under the multivariate Extreme Value theory (EVT) framework. We consider the heavy-tailness of the risk factors as well a non-parametric tail dependence structure. This allows a large scope of models on the dependency. We assess the Value-at-Risk of a diversified portfolio constructed from dependent risk factors. Moreover, we examine the diversification effects under this setup.Key words: Aggregated risk, diversification effect, multivariate Extreme Value Theory JEL: G11, C14Dependence structure of risk factors and diversification effectsFull texthttp://www.dnb.nl/en/binaries/Working%20Paper%20219-2009_tcm47-220795.pdfChen ZhouChen Zhou2009-07Netherlands Bank DNB Working PapersC14G11Can Open Capital Markets Help Avoid Currency Crises?
http://www.dnb.nl/en/binaries/Working%20paper%20205_tcm47-212965.pdf
Netherlands Bank DNB Working Papers by Gus Garita and Chen ZhouCan Open Capital Markets Help Avoid Currency Crises?2009-03-01T12:00:00ZBy proposing a measure for cross-market rebalancing effects, we provide new insights into the different sources of currency crises. We address three interrelated questions: (i) How can we best capture contagion; (ii) Is the contagion of currency crisis a regional or global phenomenon?; and (iii) By controlling for ¿cross-market rebalancing¿ do other mechanisms like "financial openness" increase the probability of a currency crisis? We introduce the concept of conditional probability of joint failure (CPJF) to measure the linkages of currency crisis intra- and inter-regionally. From estimating this measure, we test for contagion and conclude that contagion only exists regionally. Furthermore, we construct a ¿cross-market rebalancing¿ variable based on the regional CPJF. By employing a probit model to compare our new variable with a regular contagion variable often used in literature, we conclude that our new variable captures contagion better; moreover, it also captures cross-market rebalancing effects. When we properly account for these effects, then financial openness helps to diminish the probability of a currency crisis even after controlling for the onset of a banking crisis. We also show that monetary policy geared towards price stability reduces the probability of a currency crisis.JEL Classification: C10, E44, F15, F36, F37.Key words: Crisis, Contagion, Cross-Market Rebalancing, Exchange Market Pressure, Extreme Value Theory, Financial Integration.Can Open Capital Markets Help Avoid Currency Crises?Full texthttp://www.dnb.nl/en/binaries/Working%20paper%20205_tcm47-212965.pdfGus GaritaChen ZhouGus Garita and Chen Zhou2009-02Netherlands Bank DNB Working PapersC10E44F15F36F37Did the anchor of inflation expectations in the euro area turn adrift?
http://www.dnb.nl/en/binaries/Working%20paper%20191_tcm47-208072.pdf
Netherlands Bank DNB Working Papers by Gabriele Galati, Steven Poelhekke and Chen ZhouDid the anchor of inflation expectations in the euro area turn adrift?2009-01-01T12:00:00ZSurvey evidence indicates that inflation expectations increased after HICP inflation rose markedly in the course of 2007 and the first half of 2008, underpinning a general view that inflation expectations may have become unanchored from the ECB¿s target. However, until now there has been no formal test of whether this has in fact been the case. We fill this gap by testing the reaction of financial market-based measures of long-term expectations inflation expectations to news about inflation and other macroeconomic variables in the main euro area economies. If long-term inflation expectations are anchored, they should not react to the arrival of news. We find evidence that long-term inflation expectations have started to drift away from the ECB's anchor in the course of 2007. JEL Classification: E44, E52, E58. Key words: ECB, euro-area inflation and inflation compensation, anchors for expectations, news announcements.Did the anchor of inflation expectations in the euro area turn adrift?Full texthttp://www.dnb.nl/en/binaries/Working%20paper%20191_tcm47-208072.pdfSteven PoelhekkeChen ZhouGabriele GalatiGabriele Galati, Steven Poelhekke and Chen Zhou2008-12Netherlands Bank DNB Working PapersE44E52E58The power of weather. Some empirical evidence on predicting day-ahead power prices through weather forecasts
http://www.norges-bank.no/Pages/Article____69214.aspx
Central Bank of Norway (Norges Bank) Working Papers by Christian Huurman, Francesco Ravazzolo and Chen ZhouThe power of weather. Some empirical evidence on predicting day-ahead power prices through weather forecasts2008-05-09T07:12:00ZThe power of weather. Some empirical evidence on predicting day-ahead power prices through weather forecastsAbstracthttp://www.norges-bank.no/Pages/Article____69214.aspxChristian HuurmanChen ZhouFrancesco RavazzoloChristian Huurman, Francesco Ravazzolo and Chen Zhou2008-05-08Central Bank of Norway Working Papers