{"slug":"lrmes","name":"Long-Run Marginal Expected Shortfall","family":"Systemic risk","status":"active","estimate":"An institution's expected fractional equity decline conditional on the fixed 40% multi-period system decline used by the engine.","page":"/systemic","implementation":{"enginePaths":["engine/finweave_engine/layers/systemic/srisk.py"],"producerPath":"scripts/build_systemic.py","outputs":["data/parquet/systemic_series.parquet"]},"methodology":[{"path":"engine/finweave_engine/layers/systemic/srisk.py","lines":[151,185],"note":"Defines the stored LRMES approximation and the distinct dollar capital-shortfall formula."},{"path":"docs/systemic_methodology.md","lines":[148,194],"note":"Documents the GARCH-DCC filtered path, LRMES interpretation, and why the dollar output is not produced."},{"path":"docs/CODEBASE_LEDGER.md","lines":[1683,1709],"note":"Audits the remaining input gap: book debt and shares exist, while price levels and the source-licence decision remain unresolved."}],"data":{"vintage":"45,617 observations for 28 entities from 2020-01-03 through 2026-07-06, measured 2026-08-30","tables":["data/parquet/systemic_series.parquet"],"sources":[{"label":"Yahoo Finance equity returns via the argus collector, internal-use input","url":"https://finance.yahoo.com/"}]},"method":["For each institution and the KBE system proxy, the producer fits GARCH(1,1) conditional volatility paths and a DCC(1,1) conditional-correlation path over the full aligned return history. It evaluates the engine's LRMES approximation at each filtered date with C equal to -0.40.","LRMES is a fractional conditional equity-loss estimate and is published. It is not the separate dollar capital-shortfall result often called SRISK.","The dollar result is not produced. Consolidated holding-company book debt and shares outstanding exist, but price levels do not, and the owner's price-source and licence decision remains unresolved."],"equations":[{"label":"Conditional beta","expr":"beta = rho_t * sigma_bank_t / sigma_system_t"},{"label":"LRMES","expr":"LRMES = 1 - exp(log(1 + C) * beta)"},{"label":"Dollar capital shortfall, not produced","expr":"SRISK = max(0, k * (book_debt + market_cap) - (1 - LRMES) * market_cap)"}],"validation":["The parquet contains 45,617 LRMES observations for 28 entities from 2020-01-03 through 2026-07-06, and stores them with method garch_dcc_filter.","The code audit confirms that the published series exercises the GARCH-DCC path. The methodology reports its narrow time-series range and its economically ordered cross-section rather than claiming a crisis-level spike."],"limitations":["LRMES conditions on a fixed 40% system decline. It is a conditional vulnerability estimate, not the current probability of that event and not a failure probability.","The filter uses full-sample GARCH-DCC parameters, so historical conditional paths are descriptive and not point-in-time forecasts.","No dollar capital-shortfall parquet exists. Price levels are absent, and publication awaits the owner's price-source and licence decision; book debt and shares are not the missing inputs.","The underlying Yahoo-derived equity-return input carries an internal-use, display-aggregates-only licence posture and is not a redistributable raw dataset."],"references":[{"citation":"Brownlees and Engle (2017), SRISK: A Conditional Capital Shortfall Measure of Systemic Risk, Review of Financial Studies 30(1): 48-79.","url":"https://doi.org/10.1093/rfs/hhw060"},{"citation":"Engle (2002), Dynamic Conditional Correlation, Journal of Business & Economic Statistics 20(3): 339-350.","url":"https://doi.org/10.1198/073500102288618487"}],"endpoints":[{"path":"/api/methods/[slug]","example":"/api/methods/lrmes","method":"GET","returns":"Registry metadata, implementation paths, measured vintage, methodology evidence, validation, and limitations. No model observations or parquet contents."}],"lastVerified":"2026-08-30"}