Related papers: Systemic Risks in CCP Networks
In this paper we present a Bayesian competing risk proportional hazards model to describe mortgage defaults and prepayments. We develop Bayesian inference for the model using Markov chain Monte Carlo methods. Implementation of the model is…
The modeling of the probability of joint default or total number of defaults among the firms is one of the crucial problems to mitigate the credit risk since the default correlations significantly affect the portfolio loss distribution and…
The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
We study financial networks with debt contracts and credit default swaps between specific pairs of banks. Given such a financial system, we want to decide which of the banks are in default, and how much of their liabilities can these…
Recently, there has been a growing interest in network research, especially in these fields of biology, computer science, and sociology. It is natural to address complex financial issues such as the European sovereign debt crisis from the…
We consider the problem of constructing an appropriate multivariate model for the study of the counterparty credit risk in credit rating migration problem. For this financial problem different multivariate Markov chain models were proposed.…
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…
We study the incentives of banks in a financial network, where the network consists of debt contracts and credit default swaps (CDSs) between banks. One of the most important questions in such a system is the problem of deciding which of…
The valuation of counterparty risk for single name credit derivatives requires the computa- tion of joint distributions of default times of two default-prone entities. For a Merton-type model, we derive some formulas for these joint…
The 2008 financial crisis has been attributed to "excessive complexity" of the financial system due to financial innovation. We employ computational complexity theory to make this notion precise. Specifically, we consider the problem of…
We contribute to the understanding of how systemic risk arises in a network of credit-interlinked agents. Motivated by empirical studies we formulate a network model which, despite its simplicity, depicts the nature of interbank markets…
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 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…
Management of systemic risk in financial markets is traditionally associated with setting (higher) capital requirements for market participants. There are indications that while equity ratios have been increased massively since the…
Over-the-counter markets are at the center of the postcrisis global reform of the financial system. We show how the size and structure of such markets can undergo rapid and extensive changes when participants engage in portfolio…
The current global financial system forms a highly interconnected network where a default in one of its nodes can propagate to many other nodes, causing a catastrophic avalanche effect. In this paper we consider the problem of reducing the…
The negative externalities from an individual bank failure to the whole system can be huge. One of the key purposes of bank regulation is to internalize the social costs of potential bank failures via capital charges. This study proposes a…
The market practice of extrapolating different term structures from different instruments lacks a rigorous justification in terms of cash flows structure and market observables. In this paper, we integrate our previous consistent theory for…
We develop a structural default model for interconnected financial institutions in a probabilistic framework. For all possible network structures we characterize the joint default distribution of the system using Bayesian network…