Related papers: Systemic Risk and the Dependence Structures
How, and to what extent, does an interconnected financial system endogenously amplify external shocks? This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of…
We derive Markovian master equations of single and interacting harmonic systems in different scenarios, including strong internal coupling. By comparing the dynamics resulting from the corresponding Markovian master equations with exact…
We address stability of a class of Markovian discrete-time stochastic hybrid systems. This class of systems is characterized by the state-space of the system being partitioned into a safe or target set and its exterior, and the dynamics of…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted…
This study explores the dynamic relationship between corruption and economic growth through an approach based on a system of stochastic equations. In the context of globalization and economic interdependencies, corruption not only affects…
Risk contagion concerns any entity dealing with large scale risks. Suppose (X,Y) denotes a risk vector pertaining to two components in some system. A relevant measurement of risk contagion would be to quantify the amount of influence of…
We propose a set of dependence measures that are non-linear, local, invariant to a wide range of transformations on the marginals, can show tail and risk asymmetries, are always well-defined, are easy to estimate and can be used on any…
This paper is concerned with the study of the stability of dynamical systems evolving on time scales. We first {formalize the notion of matrix measures on time scales, prove some of their key properties and make use of this notion to study…
This paper develops a continuous functional framework for analyzing contagion dynamics in financial networks, extending the Navier-Stokes-based approach to network-structured spatial processes. We model financial distress propagation as a…
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…
We study the dependence structure of market states by estimating empirical pairwise copulas of daily stock returns. We consider both original returns, which exhibit time-varying trends and volatilities, as well as locally normalized ones,…
Constraint-based causal discovery algorithms utilize many statistical tests for conditional independence to uncover networks of causal dependencies. These approaches to causal discovery rely on an assumed correspondence between the…
This project is going to work with one example of stochastic matrix to understand how Markov chains evolve and how to use them to make faster and better decisions only looking to the present state of the system.
Log-linear models are a family of probability distributions which capture relationships between variables. They have been proven useful in a wide variety of fields such as epidemiology, economics and sociology. The interest in using these…
In this paper, a new reliability model has been developed for a single system degrading stochastically which experiences soft and hard failure. Soft failure occurs when the physical deterioration level of the system is greater than a…
Explicitly taking into account the risk incurred when borrowing at a shorter tenor versus lending at a longer tenor ("roll-over risk"), we construct a stochastic model framework for the term structure of interest rates in which a frequency…
Regime-switching processes contain two components: continuous component and discrete component, which can be used to describe a continuous dynamical system in a random environment. Such processes have many different properties than general…
In the Vasicek credit portfolio model, tail risk is driven primarily by the asset-correlation parameter, yet empirically is subject to correlation risk. We propose a stochastic correlation extension of the Vasicek framework in which the…
A Value-at-Risk based model is proposed to compute the adequate equity capital necessary to cover potential losses due to operational risks, such as human and system process failures, in banking organizations. Exploring the analogy to a…