Related papers: Suffocating Fire Sales
This paper provides a framework for modeling financial contagion in a network subject to fire sales and price impacts, but allowing for firms to borrow to cover their shortfall as well. We consider both uncollateralized and collateralized…
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,…
Common asset holdings are widely believed to have been the primary vector of contagion in the recent financial crisis. We develop a network approach to the amplification of financial contagion due to the combination of overlapping…
Recently, large-scale cascading failures in complex systems have garnered substantial attention. Such extreme events have been treated as an integral part of the self-organized criticality (SOC). Recent empirical work has suggested that…
Assessing systemic risk in financial markets is of great importance but it often requires data that are unavailable or available at a very low frequency. For this reason, systemic risk assessment with partial information is potentially very…
Bank's asset fire sales and recourse to central bank credit are modelled with continuous asset liquidity, allowing to derive the liability structure of a bank. Both asset sales liquidity and the central bank collateral framework are modeled…
We study the impact of regulatory capital constraints on fire sales and financial stability in a large banking system using a mean field game model. In our model banks adjust their holdings of a risky asset via trading strategies with…
Following the financial crisis of 2007-2008, a deep analogy between the origins of instability in financial systems and complex ecosystems has been pointed out: in both cases, topological features of network structures influence how easily…
Assessing the stability of economic systems is a fundamental research focus in economics, that has become increasingly interdisciplinary in the currently troubled economic situation. In particular, much attention has been devoted to the…
We study how the phenomenon of contagion can take place in the network of the world's stock exchanges due to the behavioral trait "blindeness to small changes". On large scale individual, the delay in the collective response may…
In complex systems like financial market, risk tolerance of individuals is crucial for system resilience.The single-security price limit, designed as risk tolerance to protect investors by avoiding sharp price fluctuation, is blamed for…
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…
A theoretical model of systemic-risk propagation of financial market is analyzed for stability. The state equation is an unsteady diffusion equation with a nonlinear logistic growth term, where the diffusion process captures the spread of…
Threats on the stability of a financial system may severely affect the functioning of the entire economy, and thus considerable emphasis is placed on the analyzing the cause and effect of such threats. The financial crisis in the current…
As impressively shown by the financial crisis in 2007/08, contagion effects in financial networks harbor a great threat for the stability of the entire system. Without sufficient capital requirements for banks and other financial…
Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses that a bank may suffer in a large credit…
The latest financial crisis has painfully revealed the dangers arising from a globally interconnected financial system. Conventional approaches based on the notion of the existence of equilibrium and those which rely on statistical…
We develop a novel stress-test framework to monitor systemic risk in financial systems. The modular structure of the framework allows to accommodate for a variety of shock scenarios, methods to estimate interbank exposures and mechanisms of…
Flash crashes in financial markets have become increasingly important attracting attention from financial regulators, market makers as well as from the media and the broader audience. Systemic risk and propagation of shocks in financial…
We address the problem of banking system resilience by applying off-equilibrium statistical physics to a system of particles, representing the economic agents, modelled according to the theoretical foundation of the current banking…