Related papers: Control of Dynamic Financial Networks (The Extende…
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…
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…
We model the default contagion process in a large heterogeneous financial network under the interventions of a regulator (a central bank) with only partial information which is a more realistic setting than most current literature. We…
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…
The recent financial crisis have generated renewed interests in fragilities of global financial networks among economists and regulatory authorities. In particular, a potential vulnerability of the financial networks is the "financial…
In this work we introduce a model of default contagion that combines the approaches of Eisenberg-Noe interbank networks and dynamic mean field interactions. The proposed contagion mechanism provides an endogenous rule for early defaults in…
The global financial system can be represented as a large complex network in which banks, hedge funds and other financial institutions are interconnected to each other through visible and invisible financial linkages. Recently, a lot of…
I show the equivalence between a model of financial contagion and the threshold model of global cascades proposed by Watts (2002). The model financial network comprises banks that hold risky external assets as well as interbank assets. It…
This chapter reviews key contributions of complexity science to the study of systemic risk in financial systems. The focus is on network models of financial contagion, where I explore various mechanisms of shock propagation, such as…
We consider a model of financial contagion in a bipartite network of assets and banks recently introduced in the literature, and we study the effect of power law distributions of degree and balance-sheet size on the stability of the system.…
The recent financial crisis of 2008 and the 2011 indebtedness of Greece highlight the importance of understanding the structure of the global financial network. In this paper we set out to analyze and characterize this network, as captured…
Supply chain disruptions constitute an often underestimated risk for financial stability. As in financial networks, systemic risks in production networks arises when the local failure of one firm impacts the production of others and might…
This mini-project models propagation of shocks, in time point, through links in connected banks. In particular, financial network of 100 banks out of which 15 are shocked to default (that is, 85.00% of the banks are solvent) is modelled…
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 present paper provides a multi-period contagion model in the credit risk field. Our model is an extension of Davis and Lo's infectious default model. We consider an economy of n firms which may default directly or may be infected by…
We study a simple, solvable model that allows us to investigate effects of credit contagion on the default probability of individual firms, in both portfolios of firms and on an economy wide scale. While the effect of interactions may be…
In classical contagion models, default systems are Markovian conditionally on the observation of their stochastic environment, with interacting intensities. This necessitates that the environment evolves autonomously and is not influenced…
The modeling of the probability of joint default or total number of defaults among the firms is one of the crucial problems to mitigate the credit risk since the default correlations significantly affect the portfolio loss distribution and…
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…
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…