Related papers: Financial asset bubbles in banking networks
Following the financial crisis of 2007-2008, a deep analogy between the origins of instability in financial systems and complex ecosystems has been pointed out: in both cases, topological features of network structures influence how easily…
A simple banking network model is proposed which features multiple waves of bank defaults and is analytically solvable in the limiting case of an infinitely large homogeneous network. The model is a collection of nodes representing…
In this paper we consider a mean-field model of interacting diffusions for the monetary reserves in which the reserves are subjected to a self- and cross-exciting shock. This is motivated by the financial acceleration and fire sales…
A growing number of systems are represented as networks whose architecture conveys significant information and determines many of their properties. Examples of network architecture include modular, bipartite, and core-periphery structures.…
Networks of companies can be constructed by using return correlations. A crucial issue in this approach is to select the relevant correlations from the correlation matrix. In order to study this problem, we start from an empty graph with no…
This paper investigates two mechanisms of financial contagion that are, firstly, the correlated exposure of banks to the same source of risk, and secondly the direct exposure of banks in the interbank market. It will consider a random…
Propagation of balance-sheet or cash-flow insolvency across financial institutions may be modeled as a cascade process on a network representing their mutual exposures. We derive rigorous asymptotic results for the magnitude of contagion in…
Episodes of market crashes have fascinated economists for centuries. Although many academics, practitioners and policy makers have studied questions related to collapsing asset price bubbles, there is little consensus yet about their causes…
The scope of financial systemic risk research encompasses a wide range of interbank channels and effects, including asset correlation shocks, default contagion, illiquidity contagion, and asset fire sales. This paper introduces a financial…
We develop a methodology for detecting asset bubbles using a neural network. We rely on the theory of local martingales in continuous-time and use a deep network to estimate the diffusion coefficient of the price process more accurately…
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…
We propose an interacting particle system to model the evolution of a system of banks with mutual exposures. In this model, a bank defaults when its normalized asset value hits a lower threshold, and its default causes instantaneous losses…
This work explores the characteristics of financial contagion in networks whose links distributions approaches a power law, using a model that defines banks balance sheets from information of network connectivity. By varying the parameters…
In this paper we study the evolution of asset price bubbles driven by contagion effects spreading among investors via a random matching mechanism in a discrete-time version of the liquidity based model of [25]. To this scope, we extend the…
In a previous paper, we applied a field formalism to analyze capital allocation and accumulation within a microeconomic framework of investors and firms. The financial connections were modeled by a field of stakes, representing the links…
Economic models with input-output networks assume that firm or sector (unit) growth is driven by a weighted sum of trade partners' growth and an independently-drawn idiosyncratic shock. I show that the idiosyncratic risk assumption in a…
We study the formation of an optimal interbank network in a model where banks control both their supply of liquidity, through cash reserves, and their exposures to other banks' risky projects. The value of each bank's project may suddenly…
Complex non-linear interactions between banks and assets we model by two time-dependent Erd\H{o}s Renyi network models where each node, representing bank, can invest either to a single asset (model I) or multiple assets (model II). We use…
We study asset price bubbles in market models with proportional transaction costs $\lambda\in (0,1)$ and finite time horizon $T$ in the setting of [49]. By following [28], we define the fundamental value $F$ of a risky asset $S$ as the…
In this brief review, we critically examine the recent work done on correlation-based networks in financial systems. The structure of empirical correlation matrices constructed from the financial market data changes as the individual stock…