Related papers: Default Clustering in Large Pools: Large Deviation…
We consider a large collection of dynamically interacting components defined on a weighted directed graph determining the impact of default of one component to another one. We prove a law of large numbers for the empirical measure capturing…
We develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm defaults at a stochastic intensity that is…
As it is known in the finance risk and macroeconomics literature, risk-sharing in large portfolios may increase the probability of creation of default clusters and of systemic risk. We review recent developments on mathematical and…
Emergent design failures are ubiquitous in complex systems, and often arise when system elements cluster. Approaches to systematically reduce clustering could improve a design's resilience, but reducing clustering is difficult if it is…
We propose a method for determining the most likely cause, in terms of conventional generator outages and renewable fluctuations, of power system frequency reaching a predetermined level that is deemed unacceptable to the system operator.…
We study a system of interacting particles that randomly react to form new particles. The reaction flux is the rescaled number of reactions that take place in a time interval. We prove a dynamic large-deviation principle for the reaction…
We study the influence of clustering, more specifically triangles, on cascading failures in interdependent networks or systems, in which we model the dependence between comprising systems using a dependence graph. First, we propose a new…
We consider the effect of recovery rates on a pool of credit assets. We allow the recovery rate to depend on the defaults in a general way. Using the theory of large deviations, we study the structure of losses in a pool consisting of a…
The configuration model is a sequence of random graphs constructed such that in the large network limit the degree distribution converges to a pre-specified probability distribution. The component structure of such random graphs can be…
We investigate how large deviations events cluster in the framework of an infinite moving average process with light-tailed noise and long memory. The long memory makes clusters larger, and the asymptotic behaviour of the size of the…
Clusters traverse a gas and collide with gas particles. The gas particles are adsorbed and the clusters become hosts. If the clusters are size selected, the number of guests will be Poisson distributed. We review this by showcasing four…
Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify…
We consider a collection of weakly interacting diffusion processes moving in a two-scale locally periodic environment. We study the large deviations principle of the empirical distribution of the particles' positions in the combined limit…
In classical contagion models, default systems are Markovian conditionally on the observation of their stochastic environment, with interacting intensities. This necessitates that the environment evolves autonomously and is not influenced…
In systems of diffusing particles, we investigate large deviations of a time-averaged measure of clustering around one particle. We focus on biased ensembles of trajectories, which realise large-deviation events. The bias acts on a single…
The aim of this paper is to quantify and manage systemic risk caused by default contagion in the interbank market. We model the market as a random directed network, where the vertices represent financial institutions and the weighted edges…
In the context of micro-finance, a group of individuals undertake business projects that may interfere with one another. A contagious default happens if one person's project failure leads to the default of another group member. In this…
We study multiple defaults where the global market information is modelled as progressive enlargement of filtrations. We shall provide a general pricing formula by establishing a relationship between the enlarged filtration and the…
We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted…
We develop a structural default model for interconnected financial institutions in a probabilistic framework. For all possible network structures we characterize the joint default distribution of the system using Bayesian network…