Related papers: Contagion or Macroeconomic Fluctuations? Identifia…
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…
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…
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…
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…
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…
We propose a novel credit default model that takes into account the impact of macroeconomic information and contagion effect on the defaults of obligors. We use a set-valued Markov chain to model the default process, which is the set of all…
We introduce a model for the loss distribution of a credit portfolio considering a contagion mechanism for the default of names which is the result of two independent components: an infection attempt generated by defaulting entities and a…
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…
Interbank contagion can theoretically exacerbate losses in a financial system and lead to additional cascade defaults during downturn. In this paper we produce default analysis using both regression and neural network models to verify…
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…
We consider a dynamic model of interconnected banks. New banks can emerge, and existing banks can default, creating a birth-and-death setup. Microscopically, banks evolve as independent geometric Brownian motions. Systemic effects are…
In the context of micro-finance, a group of individuals undertake business projects that may interfere with one another. A contagious default happens if one person's project failure leads to the default of another group member. In this…
We develop a structural default model for interconnected financial institutions in a probabilistic framework. For all possible network structures we characterize the joint default distribution of the system using Bayesian network…
As global financial markets become increasingly interconnected, financial contagion has developed into a major influencer of asset price dynamics. Motivated by this context, our study explores financial contagion both within and between…
Susceptibility governs the dynamics of contagion. The classical SIR model is one of the simplest compartmental models of contagion spread, assuming a single shared susceptibility level. However, variation in susceptibility over a population…
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…
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 classical reduced-form and filtration expansion framework in credit risk is extended to the case of multiple, non-ordered defaults, assuming that conditional densities of the default times exist. Intensities and pricing formulas are…
Social contagion is a ubiquitous and fundamental process that drives individual and social changes. Although social contagion arises as a result of cognitive processes and biases, the integration of cognitive mechanisms with the theory of…
Complex contagions describe systems where the probability or rate of contagious transmission is a nonlinear function of the exposure to contagious agents. These models were first studied theoretically but have since been used to capture…