Related papers: Control of Dynamic Financial Networks (The Extende…
We study the incentives of banks in a financial network, where the network consists of debt contracts and credit default swaps (CDSs) between banks. One of the most important questions in such a system is the problem of deciding which of…
Financial networks are characterized by complex structures of mutual obligations. These obligations are fulfilled entirely or in part (when defaults occur) via a mechanism called clearing, which determines a set of payments that settle the…
This paper proposes a novel dynamical model for determining clearing payments in financial networks. We extend the classical Eisenberg-Noe model of financial contagion to multiple time periods, allowing financial operations to continue…
We propose a new model of the liquidity driven banking system focusing on overnight interbank loans. This significant branch of the interbank market is commonly neglected in the banking system modeling and systemic risk analysis. We…
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…
We develop a dynamic model of cascading failures in a financial network whereby cross-holdings are viewed as feedback, external assets investments as inputs and failure penalties as static nonlinearities. We provide sufficient milder and…
This paper studies the problem of optimally allocating a cash injection into a financial system in distress. Given a one-period borrower-lender network in which all debts are due at the same time and have the same seniority, we address the…
The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical…
We consider a general tractable model for default contagion and systemic risk in a heterogeneous financial network, subject to an exogenous macroeconomic shock. We show that, under some regularity assumptions, the default cascade model…
The global crisis of 2008 provoked a heightened interest among scientists to study the phenomenon, its propagation and negative consequences. The process of modelling the spread of a virus is commonly used in epidemiology. Conceptually, the…
We study systemic default contagion in sparse financial networks and develop a framework for deciding when aggregate exposure matrices are reliable and when node-level network information changes tail risk and control design. The first…
We consider a model of contagion in financial networks recently introduced in the literature, and we characterize the effect of a few features empirically observed in real networks on the stability of the system. Notably, we consider the…
We study the problem of designing dynamic intervention policies for minimizing networked defaults in financial networks. Formally, we consider a dynamic version of the celebrated Eisenberg-Noe model of financial network liabilities and use…
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…
Widespread default involves substantial deadweight costs which could be countered by injecting capital into failing firms. Injections have positive spillovers that can trigger a repayment cascade. But which firms should a regulator bailout…
Interbank deposits (loans and credits) are quite common in banking system all over the world. Such interbank co-operation is profitable for banks but it can also lead to collective financial failures. In this paper we introduce a new model…
We consider financial networks, where banks are connected by contracts such as debts or credit default swaps. We study the clearing problem in these systems: we want to know which banks end up in a default, and what portion of their…
We introduce a dynamic and stochastic interbank model with an endogenous notion of distress contagion, arising from rational worries about future defaults and ensuing losses. This entails a mark-to-market valuation adjustment for interbank…
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…
Groups of enterprises can serve as guarantees for one another and form complex networks when obtaining loans from commercial banks. During economic slowdowns, corporate default may spread like a virus and lead to large-scale defaults or…