Related papers: Dynamic Interaction Between Asset Prices and Bank …
In our model, private actors with interbank cash flows similar to, but nore general than (Carmona, Fouque, Sun, 2013) borrow from the outside economy at a certain interest rate, controlled by the central bank, and invest in risky assets.…
Banking system crises are complex events that in a short span of time can inflict extensive damage to banks themselves and to the external economy. The crisis literature has so far identified a number of distinct effects or channels that…
We present an analytical model to study the role of expectation feedbacks and overlapping portfolios on systemic stability of financial systems. Building on [Corsi et al., 2016], we model a set of financial institutions having Value at Risk…
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 study a credit risk model which captures effects of economic interactions on a firm's default probability. Economic interactions are represented as a functionally defined graph, and the existence of both cooperative, and competitive,…
We propose a new model of the liquidity driven banking system focusing on overnight interbank loans. This significant branch of the interbank market is commonly neglected in the banking system modeling and systemic risk analysis. We…
We consider a dynamic model of interconnected banks. New banks can emerge, and existing banks can default, creating a birth-and-death setup. Microscopically, banks evolve as independent geometric Brownian motions. Systemic effects are…
A growing body of studies on systemic risk in financial markets has emphasized the key importance of taking into consideration the complex interconnections among financial institutions. Much effort has been put in modeling the contagion…
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…
By treating the financial market as a thermodynamic system, we establish a one-to-one correspondence between thermodynamic variables and economic quantities. Measured by the expected loss under the worst-case scenario, financial risk caused…
This chapter reviews key contributions of complexity science to the study of systemic risk in financial systems. The focus is on network models of financial contagion, where I explore various mechanisms of shock propagation, such as…
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 propose a dynamic model of dependence structure between financial institutions within a financial system and we construct measures for dependence and financial instability. Employing Markov structures of joint credit migrations, our…
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…
This study investigates the functioning of modern payment systems through the lens of banks' maturity mismatch practices, and it examines the effects of banks' refusal to roll over short-term interbank liabilities on financial stability.…
We propose an interacting particle system to model the evolution of a system of banks with mutual exposures. In this model, a bank defaults when its normalized asset value hits a lower threshold, and its default causes instantaneous losses…
The global financial system has become highly connected and complex. Has been proven in practice that existing models, measures and reports of financial risk fail to capture some important systemic dimensions. Only lately, advisory boards…
We propose a simple model of inter-bank borrowing and lending where the evolution of the log-monetary reserves of $N$ banks is described by a system of diffusion processes coupled through their drifts in such a way that stability of the…
We study the dynamics of correlation and variance in systems under the load of environmental factors. A universal effect in ensembles of similar systems under the load of similar factors is described: in crisis, typically, even before…
I study the limit of a large random economy, where a set of consumers invests in financial instruments engineered by banks, in order to optimize their future consumption. This exercise shows that, even in the ideal case of perfect…