Related papers: Effects of Economic Interactions on Credit Risk
The 2008 financial crisis illustrated the need for a thorough, functional understanding of systemic risk in strongly interconnected financial structures. Dynamic processes on complex networks being intrinsically difficult, most recent…
In this paper, we are interested in evaluating the resilience of financial portfolios under extreme economic conditions. Therefore, we use empirical measures to characterize the transmission process of macroeconomic shocks to risk…
A Value-at-Risk based model is proposed to compute the adequate equity capital necessary to cover potential losses due to operational risks, such as human and system process failures, in banking organizations. Exploring the analogy to a…
We propose an interacting particle system to model the evolution of a system of banks with mutual exposures. In this model, a bank defaults when its normalized asset value hits a lower threshold, and its default causes instantaneous losses…
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…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
We investigate a class of binary choice models with social interactions. We propose a unifying perspective that integrates economic models using a utility function and psychological models using an impact function. A general approach for…
Mixed Probit models are widely applied in many fields where prediction of a binary response is of interest. Typically, the random effects are assumed to be independent but this is seldom the case for many real applications. In the credit…
Addressing both natural and societal challenges requires collective cooperation. Studies on collective-risk social dilemmas have shown that individual decisions are influenced by the perceived risk of collective failure. However, existing…
This paper presents a dynamic game framework to analyze the role of large banks in interbank markets. By extending existing models, we incorporate a large bank as a dynamic decision-maker interacting with multiple small banks. Using the…
Risk-driven behavior provides a feedback mechanism through which individuals both shape and are collectively affected by an epidemic. We introduce a general and flexible compartmental model to study the effect of heterogeneity in the…
This paper describes an agent-based model of interacting firms, in which interacting firm agents rationally invest capital and labor in order to maximize payoff. Both transactions and production are taken into account in this model. First,…
This study explores the impact of unemployment benefits on employment quality, job stability, and tenure within complex labour market dynamics. Given the macroeconomic consequences of changes in unemployment benefits, including their impact…
The issue of model risk in default modeling has been known since inception of the Academic literature in the field. However, a rigorous treatment requires a description of all the possible models, and a measure of the distance between a…
We study the role of imitation within a model of economics with adaptive agents. The basic ingredients are those of the Minority Game. We add the possibility of local information exchange and imitation of the neighbour's strategy. Imitators…
We model a network economy with three sectors: downstream firms, upstream firms, and banks. Agents are linked by productive and credit relationships so that the behavior of one agent influences the behavior of the others through network…
This paper presents macroeconomic model that is based on parallels between macroeconomic multi-agent systems and multi-particle systems. We use risk ratings of economic agents as their coordinates on economic space. Aggregates of economic…
The instability of the financial system as experienced in recent years and in previous periods is often linked to credit defaults, i.e., to the failure of obligors to make promised payments. Given the large number of credit contracts, this…
A dynamic herding model with interactions of trading volumes is introduced. At time $t$, an agent trades with a probability, which depends on the ratio of the total trading volume at time $t-1$ to its own trading volume at its last trade.…
In this paper, we assess how the stability of financial networks is affected by interconnectedness considering its tiniest variation: the edge. We compute the impact of edges as the percentage difference in the systemic risk (SR) of the…