Related papers: Network Valuation in Financial Systems
We study insolvency cascades in an interbank system when banks are allowed to insure their loans with credit default swaps (CDS) sold by other banks. We show that, by properly shifting financial exposures from one institution to another, a…
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…
Whereas traditional credit scoring tends to employ only individual borrower- or loan-level predictors, it has been acknowledged for some time that connections between borrowers may result in default risk propagating over a network. In this…
Network equilibrium models represent a versatile tool for the analysis of interconnected objects and their relationships. They have been widely employed in both science and engineering to study the behavior of complex systems under various…
In this research, we introduce a robust metric to identify Systemically Important Financial Institution (SIFI) in a financial network by taking into account both common idiosyncratic shocks and contagion through counterparty exposures. We…
Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…
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…
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…
Valuing corporate bonds in systemic economies is challenging due to intricate webs of inter-institutional exposures. When a bank defaults, cascading losses propagate through the network, with payments determined by a system of fixed-point…
We derive the default cascade model and the fire-sale spillover model in a unified interdependent framework. The interactions among banks include not only direct cross-holding, but also indirect dependency by holding mutual assets outside…
This paper considers robust stability analysis of a large network of interconnected uncertain systems. To avoid analyzing the entire network as a single large, lumped system, we model the network interconnections with integral quadratic…
Due to the interconnectedness of financial entities, estimating certain key properties of a complex financial system (e.g. the implied level of systemic risk) requires detailed information about the structure of the underlying network.…
We consider networks of banks with assets and liabilities. Some banks may be insolvent, and a central bank can decide which insolvent banks, if any, to bail out. We view bailouts as an optimization problem where the central bank has given…
We consider a large random network, in which the performance of a node depends upon that of its neighbours and some external random influence factors. This results in random vector valued fixed-point (FP) equations in large dimensional…
Micro-structural models of contagion and systemic risk emphasize that shock propagation is inherently multi-channel, spanning counterparty exposures, short-term funding and roll-over risk, securities cross-holdings, and common-asset…
In this paper, we introduce an impact centrality measure to evaluate shock propagation on financial networks capturing a notion of contagion and systemic risk contributions, permitting comparisons of these risks over time. In addition, we…
This paper proposes a novel dynamical model for determining clearing payments in financial networks. We extend the classical Eisenberg-Noe model of financial contagion to multiple time periods, allowing financial operations to continue…
Node centrality is one of the most important and widely used concepts in the study of complex networks. Here, we extend the paradigm of node centrality in financial and economic networks to consider the changes of node "importance" produced…
We survey systemic risks to financial markets and present a high-level description of an algorithm that measures systemic risk in terms of coupled networks.
Interconnected networks describe the dynamics of important systems in a wide range such as biological systems and electrical power grids. Some important features of these systems were successfully studied and understood through simplified…