Related papers: Dynamic Clearing and Contagion in Financial Networ…
Banks in the interbank network can not assess the true risks associated with lending to other banks in the network, unless they have full information on the riskiness of all the other banks. These risks can be estimated by using network…
The 2023 U.S. banking crisis propagated not through direct financial linkages but through a high-frequency, information-based contagion channel. This paper moves beyond exploration analysis to test the "too-similar-to-fail" hypothesis,…
Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress,…
Many new models for measuring financial contagion have been presented recently. While these models have not been specified for investment funds directly, there are many similarities that could be explored to extend the models. In this work…
We model the default contagion process in a large heterogeneous financial network under the interventions of a regulator (a central bank) with only partial information which is a more realistic setting than most current literature. We…
We consider a model of financial contagion in a bipartite network of assets and banks recently introduced in the literature, and we study the effect of power law distributions of degree and balance-sheet size on the stability of the system.…
We introduce a model for the loss distribution of a credit portfolio considering a contagion mechanism for the default of names which is the result of two independent components: an infection attempt generated by defaulting entities and a…
Modern financial networks are highly connected and result in complex interdependencies of the involved institutions. In the prominent Eisenberg-Noe model, a fundamental aspect is clearing -- to determine the amount of assets available to…
The existence of asymmetric information has always been a major concern for financial institutions. Financial intermediaries such as commercial banks need to study the quality of potential borrowers in order to make their decision on…
We introduce a dynamic model of the default waterfall of derivatives CCPs and propose a risk sensitive method for sizing the initial margin (IM), and the default fund (DF) and its allocation among clearing members. Using a Markovian…
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…
This paper develops a dynamic monetary model to study the (in)stability of the fractional reserve banking system. The model shows that the fractional reserve banking system can endanger stability in that equilibrium is more prone to exhibit…
We study financial networks where banks are connected by debt contracts. We consider the operation of debt swapping when two creditor banks decide to exchange an incoming payment obligation, thus leading to a locally different network…
The global crisis of 2008 provoked a heightened interest among scientists to study the phenomenon, its propagation and negative consequences. The process of modelling the spread of a virus is commonly used in epidemiology. Conceptually, the…
Current understanding holds that financial contagion is driven mainly by the system-wide interconnectedness of institutions. A distinction has been made between systematic and idiosyncratic channels of contagion, with shocks transmitted…
We develop a dynamic model of cascading failures in a financial network whereby cross-holdings are viewed as feedback, external assets investments as inputs and failure penalties as static nonlinearities. We provide sufficient milder and…
We analyze the late-time relaxation dynamics for a general contagion model. In this model, nodes are either active or failed. Active nodes can fail either "spontaneously" at any time or "externally" if their neighborhoods are sufficiently…
The common real-world feature of individuals migrating through a network -- either in real space or online -- significantly complicates understanding of network processes. Here we show that even though a network may appear static on…
We theorize the financial health of a company and the risk of its default. A company is financially healthy as long as its equilibrium in the financial system is maintained, which depends on the cost attributable to the probability that…
Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses that a bank may suffer in a large credit…