Related papers: Contagion on Financial Networks: An Introduction

The current global financial system forms a highly interconnected network where a default in one of its nodes can propagate to many other nodes, causing a catastrophic avalanche effect. In this paper we consider the problem of reducing the…

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…

An asset network systemic risk (ANWSER) model is presented to investigate the impact of how shadow banks are intermingled in a financial system on the severity of financial contagion. Particularly, the focus of this study is the impact of…

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…

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…

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 importance of adequately modeling credit risk has once again been highlighted in the recent financial crisis. Defaults tend to cluster around times of economic stress due to poor macro-economic conditions, {\em but also} by directly…

Many systems, ranging from engineering to medical to societal, can only be properly characterized by multiple interdependent networks whose normal functioning depends on one another. Failure of a fraction of nodes in one network may lead to…

The scope of financial systemic risk research encompasses a wide range of interbank channels and effects, including asset correlation shocks, default contagion, illiquidity contagion, and asset fire sales. This paper introduces a financial…

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…

Networks of financial exposures are the key propagators of risk and distress among banks, but their empirical structure is not publicly available because of confidentiality. This limitation has triggered the development of methods of…

Since the latest financial crisis, the idea of systemic risk has received considerable interest. In particular, contagion effects arising from cross-holdings between interconnected financial firms have been studied extensively. Drawing…

The seniority of debt, which determines the order in which a bankrupt institution repays its debts, is an important and sometimes contentious feature of financial crises, yet its impact on system-wide stability is not well understood. We…

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…

We undertake a fundamental study of network equilibria modeled as solutions of fixed point equations for monotone linear functions with saturation nonlinearities. The considered model extends one originally proposed to study systemic risk…

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…

We present a network-based framework for simulating systemic risk that considers shock propagation in banking systems. In particular, the framework allows the modeller to reflect a top-down framework where a shock to one bank in the system…

Bank crisis is challenging to define but can be manifested through bank contagion. This study presents a comprehensive framework grounded in nonlinear time series analysis to identify potential early warning signals (EWS) for impending…

We reverse engineer dynamics of financial contagion to find the scenario of smallest exogenous shock that, should it occur, would lead to a given final systemic loss. This reverse stress test can be used to identify the potential triggers…

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…