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We show that the emergence of systemic risk in complex systems can be understood from the evolution of functional networks representing interactions inferred from fluctuation correlations between macroscopic observables. Specifically, we…
We consider a mean-variance portfolio selection problem in a financial market with contagion risk. The risky assets follow a jump-diffusion model, in which jumps are driven by a multivariate Hawkes process with mutual-excitation effect. The…
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…
Cascading failures represent a fundamental threat to the integrity of complex systems, often precipitating a comprehensive collapse across diverse infrastructures and financial networks. This research articulates a robust and pragmatic…
This paper proposes a dynamic process of portfolio risk measurement to address potential information loss. The proposed model takes advantage of financial big data to incorporate out-of-target-portfolio information that may be missed when…
We investigate the trading behavior of Finnish individual investors trading the stocks selected to compute the OMXH25 index in 2003 by tracking the individual daily investment decisions. We verify that the set of investors is a highly…
Every "x"-adjustment in the so-called xVA financial risk management framework relies on the computation of exposures. Considering thousands of Monte Carlo paths and tens of simulation steps, a financial portfolio needs to be evaluated…
We investigate the concept of network momentum, a novel trading signal derived from momentum spillover across assets. Initially observed within the confines of pairwise economic and fundamental ties, such as the stock-bond connection of the…
Community detection methods can be used to explore the structure of complex systems. The well-known modular configurations in complex financial systems indicate the existence of community structures. Here we analyze the community properties…
Cyber risk has become a critical financial threat in today's interconnected digital economy. This paper introduces a cyber-risk management framework for networked digital systems that combines the strategic behavior of players with…
Online portfolio selection is a fundamental problem in computational finance, which has been extensively studied across several research communities, including finance, statistics, artificial intelligence, machine learning, and data mining,…
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…
Bank crisis is challenging to define but can be manifested through bank contagion. This study presents a comprehensive framework grounded in nonlinear time series analysis to identify potential early warning signals (EWS) for impending…
An asset network systemic risk (ANWSER) model is presented to investigate the impact of how shadow banks are intermingled in a financial system on the severity of financial contagion. Particularly, the focus of this study is the impact of…
The threshold model has been widely adopted as a classic model for studying contagion processes on social networks. We consider asymmetric individual interactions in social networks and introduce a persuasion mechanism into the threshold…
We set up a structural model to study credit risk for a portfolio containing several or many credit contracts. The model is based on a jump--diffusion process for the risk factors, i.e. for the company assets. We also include correlations…
We study contagion and systemic risk in sparse financial networks with balance-sheet interactions on a directed random graph. Each institution has homogeneous liabilities and equity, and exposures along outgoing edges are split equally…
In the post-crisis era, financial regulators and policymakers are increasingly interested in data-driven tools to measure systemic risk and to identify systemically important firms. Granger Causality (GC) based techniques to build networks…
Financial crises emerge when structural vulnerabilities accumulate across sectors, markets, and investor behavior. Predicting these systemic transitions is challenging because they arise from evolving interactions between market…
We discuss and extend a powerful, geometric framework to represent the set of portfolios, which identifies the space of asset allocations with the points lying in a convex polytope. Based on this viewpoint, we survey certain…