Related papers: Hierarchical contagions in the interdependent fina…
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…
In spite of the growing theoretical literature on cascades of failures in interbank lending networks, empirical results seem to suggest that networks of direct exposures are not the major channel of financial contagion. In this paper we…
One of the most defining features of the global financial network is its inherent complex and intertwined structure. From the perspective of systemic risk it is important to understand the influence of this network structure on default…
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…
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 European sovereign debt crisis has impaired many European banks. The distress on the European banks may transmit worldwide, and result in a large-scale knock-on default of financial institutions. This study presents a computer…
The 2008 financial crisis illustrated the need for a thorough, functional understanding of systemic risk in strongly interconnected financial structures. Dynamic processes on complex networks being intrinsically difficult, most recent…
The interconnectedness of financial institutions affects instability and credit crises. To quantify systemic risk we introduce here the PD model, a dynamic model that combines credit risk techniques with a contagion mechanism on the network…
Credit and liquidity risks represent main channels of financial contagion for interbank lending markets. On one hand, banks face potential losses whenever their counterparties are under distress and thus unable to fulfill their obligations.…
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 introduce a general framework for models of cascade and contagion processes on networks, to identify their commonalities and differences. In particular, models of social and financial cascades, as well as the fiber bundle model, the…
This paper provides a general framework for modeling financial contagion in a system with obligations in multiple illiquid assets (e.g., currencies). In so doing, we develop a multi-layered financial network that extends the single network…
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…
In the real world, the stable operation of a network is usually inseparable from the mutual support of other networks. In such an interdependent network, a node in one layer may depend on multiple nodes in another layer, forming a complex…
Assessing the resilience of the economy requires accounting for its intrinsic multi-layer nature, by assessing for instance how disruptions at the firm level spread through the production network and propagate to the banking sector. Methods…
We introduce a general model for the balance-sheet consistent valuation of interbank claims within an interconnected financial system. Our model represents an extension of clearing models of interdependent liabilities to account for the…
Various social, financial, biological and technological systems can be modeled by interdependent networks. It has been assumed that in order to remain functional, nodes in one network must receive the support from nodes belonging to…
This work explores the characteristics of financial contagion in networks whose links distributions approaches a power law, using a model that defines banks balance sheets from information of network connectivity. By varying the parameters…
We propose a generic system model for a special category of interdependent networks, demand-supply networks, in which the demand and the supply nodes are associated with heterogeneous loads and resources, respectively. Our model sheds a…
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…