Related papers: Dynamic Contagion in a Banking System with Births …
When banks choose similar investment strategies the financial system becomes vulnerable to common shocks. We model a simple financial system in which banks decide about their investment strategy based on a private belief about the state of…
Trading activities in financial systems create various channels through which systemic risk can propagate. An important contagion channel is financial fire sales, where a bank failure causes asset prices to fall due to asset liquidation,…
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…
A model for the evolution of a large population interacting system is considered in which a marked Poisson processes influences their evolution, together with a Brownian motion. Mean field McKean-Vlasov limits of such system are formulated…
We construct a continuous time model for price-mediated contagion precipitated by a common exogenous stress to the banking book of all firms in the financial system. In this setting, firms are constrained so as to satisfy a risk-weight…
Financial contagion from liquidity shocks has being recently ascribed as a prominent driver of systemic risk in interbank lending markets. Building on standard compartment models used in epidemics, in this work we develop an EDB…
We present a model for the dynamics of a population of bacteria with a continuum of traits, who compete for resources and exchange horizontally (transfer) an otherwise vertically inherited trait with possible mutations. Competition…
The purpose of this paper is to advance the understanding of the conditions that give rise to flash crash contagion, particularly with respect to overlapping asset portfolio crowding. To this end, we designed, implemented, and assessed a…
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…
We reverse engineer dynamics of financial contagion to find the scenario of smallest exogenous shock that, should it occur, would lead to a given final systemic loss. This reverse stress test can be used to identify the potential triggers…
Solomon and Golo [1] have recently proposed an autocatalytic (self-reinforcing) feedback model which couples a macroscopic system parameter (the interest rate), a microscopic parameter that measures the distribution of the states of the…
We compare observed corporate cumulative default probabilities to those calculated using a stochastic model based on an extension of the work of Black and Cox and find that corporations default as if via diffusive dynamics. The model, based…
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…
This paper is concerned with the problem of budget control in a large particle system modeled by stochastic differential equations involving hitting times, which arises from considerations of systemic risk in a regional financial network.…
A novel probabilistic framework for modelling anomalous diffusion is presented. The resulting process is Markovian, non-homogeneous, non-stationary, non-ergodic, and state-dependent. The fundamental law governing this process is driven by…
The 2008 financial crisis exposed fundamental vulnerabilities in interconnected banking systems, yet existing frameworks fail to integrate spatial propagation with network contagion mechanisms. This paper develops a unified spatial-network…
We study the asymptotics of the point process induced by an interacting particle system with mean-field drift interaction. Under suitable assumptions, we establish propagation of chaos for this point process: it has the same weak limit as…
The present paper is devoted to the study of a bank salvage model with finite time horizon and subjected to stochastic impulse controls. In our model, the bank's default time is a completely inaccessible random quantity generating its own…
We develop a dynamic point process model of correlated default timing in a portfolio of firms, and analyze typical default profiles in the limit as the size of the pool grows. In our model, a firm defaults at a stochastic intensity that is…
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…