Related papers: Double Cascade Model of Financial Crises
This paper studies the problem of optimally allocating a cash injection into a financial system in distress. Given a one-period borrower-lender network in which all debts are due at the same time and have the same seniority, we address the…
An asset network systemic risk (ANWSER) model is presented to investigate the impact of how shadow banks are intermingled in a financial system on the severity of financial contagion. Particularly, the focus of this study is the impact of…
Banks in the interbank network can not assess the true risks associated with lending to other banks in the network, unless they have full information on the riskiness of all the other banks. These risks can be estimated by using network…
Physical infrastructure systems supply crucial resources to residential, commercial, and industrial activities. These infrastructure systems generally consist of multiple types of infrastructure assets that are interdependent. In the event…
Cascading failures, such as bankruptcies and defaults, pose a serious threat for the resilience of the global financial system. Indeed, because of the complex investment and cross-holding relations within the system, failures can occur as a…
Cascading failure is a potentially devastating process that spreads on real-world complex networks and can impact the integrity of wide-ranging infrastructures, natural systems, and societal cohesiveness. One of the essential features that…
We consider the problem of governing systemic risk in a banking system model. The banking system model consists in an initial value problem for a system of stochastic differential equations whose dependent variables are the log-monetary…
This paper develops a continuous framework for analyzing financial contagion that incorporates both geographic proximity and interbank network linkages. The framework characterizes stress propagation through a master equation whose solution…
The recent financial crisis has stressed the need to understand financial systems as networks of interdependent countries, where cross-border financial linkages play the fundamental role. It has also been emphasized that the relevance of…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
In network systems, a local perturbation can amplify as it propagates, potentially leading to a large-scale cascading failure. Here we derive a continuous model to advance our understanding of cascading failures in power-grid networks. The…
During a financial crisis, the capital markets network frequently exhibits a high correlation between returns. We developed a network analysis framework based on daily returns from 42 countries to determine systemic stability. Our network…
We study the formation of an optimal interbank network in a model where banks control both their supply of liquidity, through cash reserves, and their exposures to other banks' risky projects. The value of each bank's project may suddenly…
Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…
Management of systemic risk in financial markets is traditionally associated with setting (higher) capital requirements for market participants. There are indications that while equity ratios have been increased massively since the…
Realistic credit risk assessment, the estimation of losses from counterparty's failure, is central for the financial stability. Credit risk models focus on the financial conditions of borrowers and only marginally consider other risks from…
Large scale networks delineating collective dynamics often exhibit cascading failures across nodes leading to a system-wide collapse. Prominent examples of such phenomena would include collapse on financial and economic networks.…
The interbank market is considered one of the most important channels of contagion. Its network representation, where banks and claims/obligations are represented by nodes and links (respectively), has received a lot of attention in the…
We use machine learning tools to model the line interaction of failure cascading in power grid networks. We first collect data sets of simulated trajectories of possible consecutive line failure following an initial random failure and…
In the wake of the ongoing global financial crisis, interdependencies among banks have come into focus in trying to assess systemic risk. To date, such analysis has largely been based on numerical data. By contrast, this study attempts to…