TITLE:
Study on the Systemic Risk of China’s Stock Markets under Risk-Neutral Conditions
AUTHORS:
Shibo Dai, Handong Li
KEYWORDS:
Stochastic Discount Factor, Risk Neutrality, Tail Risk, Shanghai Index, Hang Seng Index
JOURNAL NAME:
Journal of Mathematical Finance,
Vol.9 No.1,
February
27,
2019
ABSTRACT: Based on stochastic discount factor theory, this paper proposes a method to
convert the traditional systemic risk measures of financial markets, such as
VaR, ES, MES and SES, into risk-neutral measures. We proposed a novel way
to neutralize the returns without relying on option price information. Then,
we empirically analyzed and compared the systemic risks and changes between
the A-shares in Shanghai and H-shares in Hong Kong before and after
a stock market crash, and we found that systematic risk measures under risk
neutrality could more accurately determine market system risks than traditional
systemic risk measures. Moreover, these systemic risk measures have a
certain market risk warning effect.