Related papers: Default contagion risks in Russian interbank marke…
Risk management is an important practice in the banking industry. In this paper we develop a new methodology to estimate and predict the probability of default (PD) based on the rating transition matrices, which relates the rating…
We test the hypothesis that interconnections across financial institutions can be explained by a diversification motive. This idea stems from the empirical evidence of the existence of long-term exposures that cannot be explained by a…
Relationship lending is broadly interpreted as a strong partnership between a lender and a borrower. Nevertheless, we still lack consensus regarding how to quantify the strength of a lending relationship, while simple statistics such as the…
A Value-at-Risk based model is proposed to compute the adequate equity capital necessary to cover potential losses due to operational risks, such as human and system process failures, in banking organizations. Exploring the analogy to a…
We introduce a heterogeneous formulation of a contagious McKean-Vlasov system, whose inherent heterogeneity comes from asymmetric interactions with a natural and highly tractable structure. It is shown that this formulation characterises…
This paper characterizes the probability of a market failure defined as the default of two or more globally systemically important banks (G-SIBs) in a small interval of time. The default probabilities of the G-SIBs are correlated through…
Predicting the bankruptcy risk of small and medium-sized enterprises (SMEs) is an important step for financial institutions when making decisions about loans. Existing studies in both finance and AI research fields, however, tend to only…
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…
Many new models for measuring financial contagion have been presented recently. While these models have not been specified for investment funds directly, there are many similarities that could be explored to extend the models. In this work…
In this paper we develop a novel hidden Markov graphical model to investigate time-varying interconnectedness between different financial markets. To identify conditional correlation structures under varying market conditions and…
Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress,…
Modelling systems with networks has been a powerful approach to tame the complexity of several phenomena. Unfortunately, such an approach is often made difficult by the large number of variables to take into consideration. Methods of…
A key question in many network studies is whether the observed correlations between units are primarily due to contagion or latent confounding. Here, we study this question using a segregated graph (Shpitser, 2015) representation of these…
We propose a dynamic network model where two mechanisms control the probability of a link between two nodes: (i) the existence or absence of this link in the past, and (ii) node-specific latent variables (dynamic fitnesses) describing the…
We study financial networks where banks are connected by debt contracts. We consider the operation of debt swapping when two creditor banks decide to exchange an incoming payment obligation, thus leading to a locally different network…
Traditional balance-of-payments (BoP) analysis treats national external positions as largely idiosyncratic time series. This misses an essential structural fact: global imbalances are jointly realized on a directed, weighted network of…
We study the international interbank market through a geometrical and a topological analysis of empirical data. The geometrical analysis of the time series of cross-country liabilities shows that the systematic information of the interbank…
In this paper, we assess how the stability of financial networks is affected by interconnectedness considering its tiniest variation: the edge. We compute the impact of edges as the percentage difference in the systemic risk (SR) of the…
A minimal stochastic dynamical model of the interbank network is introduced, with linear interactions mediated by an integral of recent variations. Defining stress as the variance over the banks' states, the interaction correction to the…
This paper empirically analyzes a dataset published by the European Banking Authority. Our main aim was to study how the Leverage Ratio is affected by adverse financial scenarios. This was be followed by observing how Leverage Ratio…