Related papers: Densely Entangled Financial Systems
Counterparty risk denotes the risk that a party defaults in a bilateral contract. This risk not only depends on the two parties involved, but also on the risk from various other contracts each of these parties holds. In rather informal…
Evaluation of systemic risk in networks of financial institutions in general requires information of inter-institution financial exposures. In the framework of Debt Rank algorithm, we introduce an approximate method of systemic risk…
The question of how to stabilize financial systems has attracted considerable attention since the global financial crisis of 2007-2009. Recently, Beale et al. ("Individual versus systemic risk and the regulator's dilemma", Proc Natl Acad…
We report a study of a stylized banking cascade model investigating systemic risk caused by counter party failure using liabilities and assets to define banks' balance sheet. In our stylized system, banks can be in two states: normally…
A simple banking network model is proposed which features multiple waves of bank defaults and is analytically solvable in the limiting case of an infinitely large homogeneous network. The model is a collection of nodes representing…
Complex non-linear interactions between banks and assets we model by two time-dependent Erd\H{o}s Renyi network models where each node, representing bank, can invest either to a single asset (model I) or multiple assets (model II). We use…
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…
In the context of understanding the nature of the risk transformation process of the financial system we propose an iterative risk-trading game between several agents who build their trading strategies based on a general utility setting.…
This mini-project models propagation of shocks, in time point, through links in connected banks. In particular, financial network of 100 banks out of which 15 are shocked to default (that is, 85.00% of the banks are solvent) is modelled…
As impressively shown by the financial crisis in 2007/08, contagion effects in financial networks harbor a great threat for the stability of the entire system. Without sufficient capital requirements for banks and other financial…
When a loan is approved for a person or company, the bank is subject to \emph{credit risk}; the risk that the lender defaults. To mitigate this risk, a bank will require some form of \emph{security}, which will be collected if the lender…
The global financial system can be represented as a large complex network in which banks, hedge funds and other financial institutions are interconnected to each other through visible and invisible financial linkages. Recently, a lot of…
As economic entities become increasingly interconnected, a shock in a financial network can provoke significant cascading failures throughout the system. To study the systemic risk of financial systems, we create a bi-partite banking…
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…
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…
When banks choose similar investment strategies the financial system becomes vulnerable to common shocks. We model a simple financial system in which banks decide about their investment strategy based on a private belief about the state of…
The latest financial crisis has painfully revealed the dangers arising from a globally interconnected financial system. Conventional approaches based on the notion of the existence of equilibrium and those which rely on statistical…
We consider a network of bank holdings, where every holding has two subsidiaries of different types. A subsidiary can trade with another holding's subsidiary of the same type. Holdings support their subsidiaries up to a certain level when…
We consider the problem of risk diversification in complex networks. Nodes represent e.g. financial actors, whereas weighted links represent e.g. financial obligations (credits/debts). Each node has a risk to fail because of losses…
How, and to what extent, does an interconnected financial system endogenously amplify external shocks? This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of…