Related papers: Systemic Risk in DeFi: A Network-Based Fragility A…
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…
Economic interdependencies have become increasingly present in globalized production, financial and trade systems. While establishing interdependencies among economic agents is crucial for the production of complex products, they may also…
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…
Financial markets are exposed to systemic risk, the risk that a substantial fraction of the system ceases to function and collapses. Systemic risk can propagate through different mechanisms and channels of contagion. One important form of…
Node centrality is one of the most important and widely used concepts in the study of complex networks. Here, we extend the paradigm of node centrality in financial and economic networks to consider the changes of node "importance" produced…
The inability to see and quantify systemic financial risk comes at an immense social cost. Systemic risk in the financial system arises to a large extent as a consequence of the interconnectedness of its institutions, which are linked…
The fragility of financial systems was starkly demonstrated in early 2023 through a cascade of major bank failures in the United States, including the second, third, and fourth largest collapses in the US history. The highly interdependent…
A common problem in risk analysis is to characterize the overall security of a system of valuable assets (e.g., government buildings or communication hubs), and to suggest measures to mitigate any hazards or security threats. Currently,…
Decentralized Finance (DeFi) is a system of financial products and services built and delivered through smart contracts on various blockchains. In the past year, DeFi has gained popularity and market capitalization. However, it has also…
We propose a dynamic model of dependence structure between financial institutions within a financial system and we construct measures for dependence and financial instability. Employing Markov structures of joint credit migrations, our…
To non-experts, the traditional Centralized Finance (CeFi) ecosystem may seem obscure, because users are typically not aware of the underlying rules or agreements of financial assets and products. Decentralized Finance (DeFi), however, is…
Risks threatening modern societies form an intricately interconnected network that often underlies crisis situations. Yet, little is known about how risk materializations in distinct domains influence each other. Here we present an approach…
Decentralized finance (DeFi) borrowing and lending platforms are crucial to the decentralized economy, involving two main participants: lenders who provide assets for interest and borrowers who offer collateral exceeding their debt and pay…
The global financial system has become highly connected and complex. Has been proven in practice that existing models, measures and reports of financial risk fail to capture some important systemic dimensions. Only lately, advisory boards…
Reasoning about causes and effects naturally arises in the engineering of safety-critical systems. A classical example is Fault Tree Analysis, a deductive technique used for system safety assessment, whereby an undesired state is reduced to…
As impressively shown by the financial crisis in 2007/08, contagion effects in financial networks harbor a great threat for the stability of the entire system. Without sufficient capital requirements for banks and other financial…
Systemic financial risk refers to the simultaneous failure or destabilization of multiple financial institutions, often triggered by contagion mechanisms or common exposures to shocks. In this paper, we present a dynamical model of bank…
The rapid evolution of network services demands new paradigms for studying and designing networks. In order to understand the underlying mechanisms that provide network functions, we propose a framework which enables the functional analysis…
Socio-technical systems, where technological and human elements interact in a goal-oriented manner, provide important functional support to our societies. Here we draw attention to the underappreciated concept of timeliness -- i.e., system…
We derive five tractable credit risk metrics for DeFi lending vault depositors, grounded in a formal three level decomposition of vault risk into mechanical loss channels (Level 1), governance quality (Level 2) and smart contract code…