Related papers: Network-Aware Strategies in Financial Systems
We consider a network of coupled agents playing the Prisoner's Dilemma game, in which players are allowed to pick a strategy in the interval [0,1], with 0 corresponding to defection, 1 to cooperation, and intermediate values representing…
For a society to remain healthy and prosperous, people must collectively behave and act to contribute to the common good, even if there is often a tradeoff against their individual benefit. Paradigmatic examples include the adoption of…
Microfinance, despite its significant potential for poverty reduction, is facing sustainability hardships due to high default rates. Although many methods in regular finance can estimate credit scores and default probabilities, these…
Graphical models have gained a lot of attention recently as a tool for learning and representing dependencies among variables in multivariate data. Often, domain scientists are looking specifically for differences among the dependency…
For more than a half-century, credit risk management has used credit scoring models in each of its well-defined stages to manage credit risk. Application scoring is used to decide whether to grant a credit or not, while behavioral scoring…
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…
In this paper, we assess how the stability of financial networks is affected by interconnectedness considering its tiniest variation: the edge. We compute the impact of edges as the percentage difference in the systemic risk (SR) of the…
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…
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…
Cascading failures, such as bankruptcies and defaults, pose a serious threat for the resilience of the global financial system. Indeed, because of the complex investment and cross-holding relations within the system, failures can occur as a…
In this paper we analyze the resilience of a network of banks to joint price fluctuations of the external assets in which they have shared exposures, and evaluate the worst-case effects of the possible default contagion. Indeed, when the…
A modern version of Monetary Circuit Theory with a particular emphasis on stochastic underpinning mechanisms is developed. It is explained how money is created by the banking system as a whole and by individual banks. The role of central…
Financial networks are dynamic. To assess their systemic importance to the world-wide economic network and avert losses we need models that take the time variations of the links and nodes into account. Using the methodology of classical…
The concept of clearing or netting, as defined in the glossaries of European Central Bank, has a great impact on the economy of a country influencing the exchanges and the interactions between companies. On short, netting refers to an…
Banking system crises are complex events that in a short span of time can inflict extensive damage to banks themselves and to the external economy. The crisis literature has so far identified a number of distinct effects or channels that…
An asset network systemic risk (ANWSER) model is presented to investigate the impact of how shadow banks are intermingled in a financial system on the severity of financial contagion. Particularly, the focus of this study is the impact of…
We study a rating system in which a set of individuals (e.g., the customers of a restaurant) evaluate a given service (e.g, the restaurant), with their aggregated opinion determining the probability of all individuals to use the service and…
A negative basis trade enters a long bond position and buys protection on the issuer of the bond through credit default swap (CDS), aiming at arbitrage profit due to the bond-CDS basis. To classic reduced form model theorists, the existence…
The behavior of the network and its stability are governed by both dynamics of individual nodes as well as their topological interconnections. Attention mechanism as an integral part of neural network models was initially designed for…
We propose a dynamic network model where two mechanisms control the probability of a link between two nodes: (i) the existence or absence of this link in the past, and (ii) node-specific latent variables (dynamic fitnesses) describing the…