Related papers: Incentivizing Resilience in Financial Networks
We propose a model and an estimation technique to distinguish systemic risk and contagion in credit risk. The main idea is to assume, for a set of $d$ obligors, a set of $d$ idiosyncratic shocks and a shock that triggers the default of all…
How, and to what extent, does an interconnected financial system endogenously amplify external shocks? This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of…
We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted…
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…
Economic and financial networks play a crucial role in various important processes, including economic integration, globalization, and financial crises. Of particular interest is understanding whether the temporal evolution of a real…
This paper studies existence and uniqueness of equilibrium prices in a model of the banking sector in which banks trade contingent convertible bonds with stock price triggers among each other. This type of financial product was proposed as…
In normal times, it is assumed that financial institutions operating in non-overlapping sectors have complementary and distinct outcomes, typically reflected in mostly uncorrelated outcomes and asset returns. Such is the reasoning behind…
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…
Agencies such as Standard & Poor's and Moody's provide bank credit ratings that influence economic stability and decision-making by stakeholders. Accurate and timely predictions support informed decision-making, regulatory actions, and…
Inspired by recent ideas on how the analysis of complex financial risks can benefit from analogies with independent research areas, we propose an unorthodox framework for mapping microfinance credit risk---a major obstacle to the…
We study a system of $N$ agents, whose wealth grows linearly, under the effect of stochastic resetting and interacting via a tax-like dynamics -- all agents donate a part of their wealth, which is, in turn, redistributed equally among all…
The instability of financial system issues might trigger a bank failure, evoke spillovers, and generate contagion effects which negatively impacted the financial system, ultimately on the economy. This phenomenon is the result of the highly…
This paper presents a dynamic game framework to analyze the role of large banks in interbank markets. By extending existing models, we incorporate a large bank as a dynamic decision-maker interacting with multiple small banks. Using the…
Based on an empirical analysis of the network structure of the Austrian inter-bank market, we study the flow of funds through the banking network following exogenous shocks to the system. These shocks are implemented by stochastic changes…
A modern version of Monetary Circuit Theory with a particular emphasis on stochastic underpinning mechanisms is developed. It is explained how money is created by the banking system as a whole and by individual banks. The role of central…
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…
Various functions of a network of excitable units can be enhanced if the network is in the `critical regime', where excitations are, on average, neither damped nor amplified. An important question is how can such networks self-organize to…
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…
National economies rest on networks of millions of customer-supplier relations. Some companies -- in the case of their default -- can trigger significant cascades of shock in the supply-chain network and are thus systemically risky. Up to…
An resilience optimal evaluation of financial portfolios implies having plausible hypotheses about the multiple interconnections between the macroeconomic variables and the risk parameters. In this paper, we propose a graphical model for…