Related papers: Risk in Network Economies
We develop a game-theoretic framework for the study of competition between firms who have budgets to "seed" the initial adoption of their products by consumers located in a social network. The payoffs to the firms are the eventual number of…
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…
Supply chain optimization schemes have more often than not underplayed the role of inherent stochastic fluctuations in the associated variables. The present article focuses on the associated reengagement and correlated renormalization of…
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…
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
Input-Output analysis describes the dependence of production, demand and trade between sectors and regions and allows to understand the propagation of economic shocks through economic networks. A central challenge in practical applications…
This paper analyzes single-item continuous-review inventory models with random supplies in which the inventory dynamic between orders is described by a diffusion process, and a long-term average cost criterion is used to evaluate decisions.…
We provide a strategic model of the formation of production networks that subsumes the standard general equilibrium approach. The objective of firms in our setting is to choose their supply relationships so as to maximize their profit at…
A simple banking network model is proposed which features multiple waves of bank defaults and is analytically solvable in the limiting case of an infinitely large homogeneous network. The model is a collection of nodes representing…
This paper examines the pricing of short-term and long-term dynamic network risk in the cross-section of stock returns. Stocks with high sensitivities to dynamic network risk earn lower returns. We rationalize our finding with economic…
Financial contagion has been widely recognized as a fundamental risk to the financial system. Particularly potent is price-mediated contagion, wherein forced liquidations by firms depress asset prices and propagate financial stress,…
Aggregate and systemic risk in complex systems are emergent phenomena depending on two properties: the idiosyncratic risks of the elements and the topology of the network of interactions among them. While a significant attention has been…
Management of systemic risk in financial markets is traditionally associated with setting (higher) capital requirements for market participants. There are indications that while equity ratios have been increased massively since the…
How a shock to an individual sector propagates to the prices of other sectors and aggregates to GDP depends on how easily sectoral goods can be substituted in production, which is determined by the intermediate input substitution…
Factor models characterize the joint behavior of large sets of financial assets through a smaller number of underlying drivers. We develop a network-based framework in which factors emerge naturally from the structure of interactions among…
Empirical researchers often estimate spillover effects by fitting linear or non-linear regression models to sampled network data. We show that common sampling schemes bias these estimates, potentially upwards, and derive biased-corrected…
Localized shocks arising from climate extremes, geopolitical conflicts, and trade protectionism cascade through trade networks, triggering global food crises. Cross-product substitution, a critical response strategy, induces cross-product…
Modern macroeconomic theories were unable to foresee the last Great Recession and could neither predict its prolonged duration nor the recovery rate. They are based on supply-demand equilibria that do not exist during recessionary shocks.…
Systemic risk arises as a multi-layer network phenomenon. Layers represent direct financial exposures of various types, including interbank liabilities, derivative- or foreign exchange exposures. Another network layer of systemic risk…
We consider the diffusion of new products in the discrete Bass-SIR model, in which consumers who adopt the product can later "recover" and stop influencing their peers to adopt the product. To gain insight into the effect of the social…