Related papers: Default Contagion, Matrix Approximation, and Contr…
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…
Empirical measures of financial connectedness based on Forecast Error Variance Decompositions (FEVDs) often yield dense network structures that obscure true transmission channels and complicate the identification of systemic risk. This…
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,…
In the context of containment of default contagion in financial networks, we here study a regulator that allocates pre-shock capital or liquidity buffers across banks connected by interbank liabilities and common external asset exposures.…
Groups of enterprises can serve as guarantees for one another and form complex networks when obtaining loans from commercial banks. During economic slowdowns, corporate default may spread like a virus and lead to large-scale defaults or…
We consider a novel McKean--Vlasov control problem with contagion through killing of particles and common noise. Each particle is killed at an exponential rate according to an intensity process that increases whenever the particle is…
In this paper, a stochastic dynamic control strategy is presented to prevent the spread of an infection over a homogeneous network. The infectious process is persistent, i.e., it continues to contaminate the network once it is established.…
We study binary state dynamics on a network where each node acts in response to the average state of its neighborhood. Allowing varying amounts of stochasticity in both the network and node responses, we find different outcomes in random…
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…
Much research in systemic risk is focused on default contagion. While this demands an understanding of valuation, fewer articles specifically deal with the existence, the uniqueness, and the computation of equilibrium prices in structural…
Risk contagion concerns any entity dealing with large scale risks. Suppose (X,Y) denotes a risk vector pertaining to two components in some system. A relevant measurement of risk contagion would be to quantify the amount of influence of…
Threats on the stability of a financial system may severely affect the functioning of the entire economy, and thus considerable emphasis is placed on the analyzing the cause and effect of such threats. The financial crisis in the current…
We introduce a dynamic and stochastic interbank model with an endogenous notion of distress contagion, arising from rational worries about future defaults and ensuing losses. This entails a mark-to-market valuation adjustment for interbank…
The stability of a complex financial system may be assessed by measuring risk contagion between various financial institutions with relatively high exposure. We consider a financial network model using a bipartite graph of financial…
The individual-based model of simple contagion processes is considered on regular graphs. This model explicitly incorporates the adjacency matrix of the network enabling us to study the effect of network structure on the dynamic of the…
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…
We study how the phenomenon of contagion can take place in the network of the world's stock exchanges due to the behavioral trait "blindeness to small changes". On large scale individual, the delay in the collective response may…
The latest financial crisis has painfully revealed the dangers arising from a globally interconnected financial system. Conventional approaches based on the notion of the existence of equilibrium and those which rely on statistical…
This paper develops a continuous framework for analyzing financial contagion that incorporates both geographic proximity and interbank network linkages. The framework characterizes stress propagation through a master equation whose solution…
This study pioneers the application of the Gai-Kapadia framework, originally developed for interbank contagion, to global equity markets. It offers a novel approach to assess systemic risk and default cascades. Using a 20-asset network (13…