Related papers: Functional Correlation Approach to Operational Ris…
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…
The ongoing concern about systemic risk since the outburst of the global financial crisis has highlighted the need for risk measures at the level of sets of interconnected financial components, such as portfolios, institutions or members of…
Evaluation of systemic risk in networks of financial institutions in general requires information of inter-institution financial exposures. In the framework of Debt Rank algorithm, we introduce an approximate method of systemic risk…
Extreme values and the tail behavior of probability distributions are essential for quantifying and mitigating risk in complex systems of all kinds. In multivariate settings, accounting for correlations is crucial. Although extreme value…
A multi-dimensional extension of the structural default model with firms' values driven by diffusion processes with Marshall-Olkin-inspired correlation structure is presented. Semi-analytical methods for solving the forward calibration…
Financial time series exhibit a number of interesting properties that are difficult to explain with simple models. These properties include fat-tails in the distribution of price fluctuations (or returns) that are slowly removed at longer…
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…
This paper derives -- considering a Gaussian setting -- closed form solutions of the statistics that Adrian and Brunnermeier and Acharya et al. have suggested as measures of systemic risk to be attached to individual banks. The statistics…
This paper develops a two-dimensional structural framework for valuing credit default swaps and corporate bonds in the presence of default contagion. Modelling the values of related firms as correlated geometric Brownian motions with…
This paper reviews current literature in the field of predictive maintenance from the system point of view. We differentiate the existing capabilities of condition estimation and failure risk forecasting as currently applied to simple…
Society is challenging systems engineers by demanding ever more complex and integrated systems. With the rise of cloud computing and systems-of-systems (including cyber-physical systems) we are entering an era where mission critical…
This paper considers mutual obligations in the interconnected bank system and analyzes their influence on joint and marginal survival probabilities as well as CDS and FTD prices for the individual banks. To make the role of mutual…
We introduce a new actuarial tail-shape index, the $\theta$-index, based on a probability equal level relationship between Value at Risk and Expected Shortfall. The index is defined at each tail probability level as the parameter value for…
We address the problem of banking system resilience by applying off-equilibrium statistical physics to a system of particles, representing the economic agents, modelled according to the theoretical foundation of the current banking…
Structural causal models postulate noisy functional relations among a set of interacting variables. The causal structure underlying each such model is naturally represented by a directed graph whose edges indicate for each variable which…
Recent technological developments have enabled us to collect complex and high-dimensional data in many scientific fields, such as population health, meteorology, econometrics, geology, and psychology. It is common to encounter such datasets…
Backtesting risk measures is a central task in financial regulation. While standard backtests evaluate whether a forecasting model is statistically consistent with observed losses, regulatory practice often requires assessing the…
We report a study of a stylized banking cascade model investigating systemic risk caused by counter party failure using liabilities and assets to define banks' balance sheet. In our stylized system, banks can be in two states: normally…
The success of OpenAI's ChatGPT in 2023 has spurred financial enterprises into exploring Generative AI applications to reduce costs or drive revenue within different lines of businesses in the Financial Industry. While these applications…
We analyze the fluctuation of the loss from default around its large portfolio limit in a class of reduced-form models of correlated firm-by-firm default timing. We prove a weak convergence result for the fluctuation process and use it for…