Related papers: Systemic Risk and the Dependence Structures
In many dynamical systems in nature, the law of the dynamics changes along with the temporal evolution of the system. These changes are often associated with the occurrence of certain events. The timing of occurrence of these events…
Markov branching systems form a fundamental class of stochastic models that are extensively applied in biology, physics, finance, and other domains. These systems are distinguished by their continuous-time evolution and inherent branching…
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…
Complex, interdependent systems are necessary to the delivery of goods and services critical to societal function. Here we demonstrate how interdependent systems respond to disruptions. Specifically, we change the spatial arrangement of a…
In this paper we introduce a generalized extension of the Eisenberg-Noe model of financial contagion to allow for time dynamics of the interbank liabilities, including a dynamic examination of default risk. This framework separates the cash…
Markov networks are popular models for discrete multivariate systems where the dependence structure of the variables is specified by an undirected graph. To allow for more expressive dependence structures, several generalizations of Markov…
We propose a structural vector autoregressive model with a new and flexible specification of the volatility process which we call Sparse Heterogeneous Markov-Switching Heteroskedasticity. In this model, the conditional variance of each…
We consider the problem of governing systemic risk in an assets-liabilities dynamical model of banking system. In the model considered each bank is represented by its assets and its liabilities.The capital reserves of a bank are the…
We develop a structural default model for interconnected financial institutions in a probabilistic framework. For all possible network structures we characterize the joint default distribution of the system using Bayesian network…
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…
Risks threatening modern societies form an intricately interconnected network that often underlies crisis situations. Yet, little is known about how risk materializations in distinct domains influence each other. Here we present an approach…
Systemic risk is a rapidly developing area of research. Classical financial models often do not adequately reflect the phenomena of bubbles, crises, and transitions between them during credit cycles. To study very improbable events,…
The fragility of financial systems was starkly demonstrated in early 2023 through a cascade of major bank failures in the United States, including the second, third, and fourth largest collapses in the US history. The highly interdependent…
We consider a dynamic model of interconnected banks. New banks can emerge, and existing banks can default, creating a birth-and-death setup. Microscopically, banks evolve as independent geometric Brownian motions. Systemic effects are…
We study cascading failures in a system comprising interdependent networks/systems, in which nodes rely on other nodes both in the same system and in other systems to perform their function. The (inter-)dependence among nodes is modeled…
We consider the problem of governing systemic risk in a banking system model. The banking system model consists in an initial value problem for a system of stochastic differential equations whose dependent variables are the log-monetary…
We explore a stochastic model that enables capturing external influences in two specific ways. The model allows for the expression of uncertainty in the parametrisation of the stochastic dynamics and incorporates patterns to account for…
Financial markets tend to switch between various market regimes over time, making stationarity-based models unsustainable. We construct a regime-switching model independent of asset classes for risk-adjusted return predictions based on…
We introduce a class of dependence structures, that we call the Multiple Risk Factor (MRF) dependence structures. On the one hand, the new constructions extend the popular CreditRisk+ approach, and as such they formally describe default…
The lifetime behaviour of loans is notoriously difficult to model, which can compromise a bank's financial reserves against future losses, if modelled poorly. Therefore, we present a data-driven comparative study amongst three techniques in…