Related papers: Leveraging the network: a stress-test framework ba…
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical…
This work proposes an augmented variant of DebtRank with uncertainty intervals as a method to investigate and assess systemic risk in financial networks, in a context of incomplete data. The algorithm is tested against a default contagion…
We consider a dynamical model of distress propagation on complex networks, which we apply to the study of financial contagion in networks of banks connected to each other by direct exposures. The model that we consider is an extension of…
We study the difference between the level of systemic risk that is empirically measured on an interbank network and the risk that can be deduced from the balance sheets composition of the participating banks. Using generalised DebtRank…
We reverse engineer dynamics of financial contagion to find the scenario of smallest exogenous shock that, should it occur, would lead to a given final systemic loss. This reverse stress test can be used to identify the potential triggers…
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…
We present a network-based framework for simulating systemic risk that considers shock propagation in banking systems. In particular, the framework allows the modeller to reflect a top-down framework where a shock to one bank in the system…
Assessing the stability of economic systems is a fundamental research focus in economics, that has become increasingly interdisciplinary in the currently troubled economic situation. In particular, much attention has been devoted to the…
This paper introduces a novel framework to study default dependence and systemic risk in a financial network that evolves over time. We analyse several indicators of risk, and develop a new latent space model to assess the health of key…
Supply chain disruptions constitute an often underestimated risk for financial stability. As in financial networks, systemic risks in production networks arises when the local failure of one firm impacts the production of others and might…
Assessing the resilience of the economy requires accounting for its intrinsic multi-layer nature, by assessing for instance how disruptions at the firm level spread through the production network and propagate to the banking sector. Methods…
The study of systemic risk is often presented through the analysis of several measures referring to quantities used by practitioners and policy makers. Almost invariably, those measures evaluate the size of the impact that exogenous events…
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…
Modelling how a shock propagates in a temporal network and how the system relaxes back to equilibrium is challenging but important in many applications, such as financial systemic risk. Most studies so far have focused on shocks hitting a…
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…
We introduce a general model for the balance-sheet consistent valuation of interbank claims within an interconnected financial system. Our model represents an extension of clearing models of interdependent liabilities to account for the…
This paper develops a continuous functional framework for analyzing contagion dynamics in financial networks, extending the Navier-Stokes-based approach to network-structured spatial processes. We model financial distress propagation as a…
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…
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…
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…