Related papers: The Network Effect in Credit Concentration Risk
This paper introduces a novel framework to study default dependence and systemic risk in a financial network that evolves over time. We analyse several indicators of risk, and develop a new latent space model to assess the health of key…
Modern society heavily relies on strongly connected, socio-technical systems. As a result, distinct risks threatening the operation of individual systems can no longer be treated in isolation. Consequently, risk experts are actively seeking…
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…
The stability of the financial system is associated with systemic risk factors such as the concurrent default of numerous small obligors. Hence it is of utmost importance to study the mutual dependence of losses for different creditors in…
Common asset holding by financial institutions, namely portfolio overlap, is nowadays regarded as an important channel for financial contagion with the potential to trigger fire sales and thus severe losses at the systemic level. In this…
Network theory proved recently to be useful in the quantification of many properties of financial systems. The analysis of the structure of investment portfolios is a major application since their eventual correlation and overlap impact the…
The negative externalities from an individual bank failure to the whole system can be huge. One of the key purposes of bank regulation is to internalize the social costs of potential bank failures via capital charges. This study proposes a…
In this paper we present a novel algorithm to study the evolution of credit risk across complex multilayer networks. Pagerank-like algorithms allow for the propagation of an influence variable across single networks, and allow quantifying…
We discuss the systemic risk implied by the interbank exposures reconstructed with the maximum entropy method. The maximum entropy method severely underestimates the risk of interbank contagion by assuming a fully connected network, while…
The importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, {\em but also} by directly…
Modern financial networks exhibit a high degree of interconnectedness and determining the causes of instability and contagion in financial networks is necessary to inform policy and avoid future financial collapse. In the American Economic…
Systemic liquidity risk, defined by the IMF as "the risk of simultaneous liquidity difficulties at multiple financial institutions", is a key topic in macroprudential policy and financial stress analysis. Specialized models to simulate…
We present a multilayer network model for credit risk assessment. Our model accounts for multiple connections between borrowers (such as their geographic location and their economic activity) and allows for explicitly modelling the…
The global balance index is used in the network literature to quantify how balanced a signed network is. In this paper we show that the global balance index of financial correlation networks can be used as a systemic risk measure. We define…
We study the mean field approximation of a recent model of cascades on networks relevant to the investigation of systemic risk control in financial networks. In the model, the hypothesis of a trend reinforcement in the stochastic process…
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…
The ongoing concern about systemic risk since the outburst of the global financial crisis has highlighted the need for risk measures at the level of sets of interconnected financial components, such as portfolios, institutions or members of…
Systemic risk is the risk that a company- or industry-level risk could trigger a huge collapse of another or even the whole institution. Various systemic risk measures have been proposed in the literature to quantify the domino and…
Credit networks rely on decentralized, pairwise trust relationships (channels) to exchange money or goods. Credit networks arise naturally in many financial systems, including the recent construct of payment channel networks in blockchain…
Cyber risks are the most common risks encountered by a modern network system. However, it is significantly difficult to assess the joint cyber risk owing to the network topology, risk propagation, and heterogeneities of components. In this…