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Systemic risk, financial markets, and performance of financial institutions

Edward M. H. Lin, Edward W. Sun, Min-Teh Yu
2016 Annals of Operations Research  
Abstract Financial inter-linkages play an important role in the emergence of financial instabilities and the formulation of systemic risk can greatly benefit from a network approach.  ...  In particular for contagion, the position of institutions in the network matters and their impact can be computed through stress tests even when there are no defaults in the system.  ...  S.B. and G.C. would like to thank Tarik Roukny and Hugues Pirotte for their comments.  ... 
doi:10.1007/s10479-016-2113-8 fatcat:3xsbkhqegnhtbly75dfwhlw4we

Local Central Counterparty

Laurențiu Paul Barangă
2019 Revista de Studii Financiare  
by the BVB and on the derivative market, supposing that BVB developed such a market.Seeing that the financial instruments listed on the trading venues managed by the BVB are heterogenous in terms of liquidity  ...  cover the resulting exposures.The central counterparty will be able to provide guarantee services for transactions based on financial instruments carried out both on the spot trading venues currently managed  ...  Guarantees formed at CCP level are used for managing losses caused by a participant's default, in a certain resource sequence, called "cascade" default.  ... 
doaj:376986a9223e4ebab5434a2224b4275c fatcat:vfsorhtbozcepk4bk6gug2l4pu

Understanding flash crash contagion and systemic risk: A micro–macro agent-based approach

James Paulin, Anisoara Calinescu, Michael Wooldridge
2019 Journal of Economic Dynamics and Control  
We find that systemic risk is strongly dependent on the behaviour of algorithmic traders, on leverage management practices, and on network topology.  ...  We are not aware of previous studies that have exhibited this phenomenon, and our results establish the importance of considering non-uniform asset allocations in future studies.  ...  This work was supported by OxFORD Asset Management (financial support only).  ... 
doi:10.1016/j.jedc.2018.12.008 fatcat:hl322f5xvfcfhps7qhmbgoqnkq

Cascading Defaults and Systemic Risk of a Banking System

Jin-Chuan Duan, Changhao Zhang
2013 Social Science Research Network  
Systemic risk of a banking system arises from cascading defaults due to interbank linkages. We propose a model which distinguishes systemic risk from its drivers -systematic and idiosyncratic risks.  ...  Systemic risk is characterised by systemic exposure and systemic fragility, corresponding to the expected losses and pervasiveness of defaults respectively (under a stress scenario).  ...  to drive cascading defaults and hence to cause higher systemic risk.  ... 
doi:10.2139/ssrn.2278168 fatcat:5buozskf6rfsflyjb2opoxmsq4

Systemic Risk Basics [chapter]

T. R. Hurd
2016 SpringerBriefs in Quantitative Finance  
Abstract Attempts to define systemic risk are summarized and found to be deficient in various respects.  ...  The blossom is blighted, the leaf is withered, the god of day goes down upon the dreary scene, and-and, in short, you are for ever floored (Charles Dickens, David Copperfield, Chap. 12, p. 185 (1950).  ...  Such shocks to creditor banks' interbank assets at the time of default of a debtor bank are the channel for default contagion and can in principle chain together like dominos to create a default cascade  ... 
doi:10.1007/978-3-319-33930-6_1 fatcat:teuwxjttcnc3xbq7gfijyzsb4m

Prediction of Systemic Risk Contagion Based on a Dynamic Complex Network Model Using Machine Learning Algorithm

Jiannan Yu, Jinlou Zhao
2020 Complexity  
Cascading defaults are also generated in the simulation according to different crisis-triggering (targeted defaults) methods.  ...  Overall, this paper provides a scientific method for policy-makers to select the optimal management policy for handling systemic risk.  ...  waves of cascading defaults.  ... 
doi:10.1155/2020/6035372 fatcat:nvf2g7hpbbehll7jw5lehgitgi

Republic of Moldova: Financial Sector Assessment Program-Bank Crisis Resolution-Stress Testing

International Monetary Fund
2016 IMF Staff Country Reports  
The objective of this exercise was to assess the resilience of the banking system to major sources of risk.  ...  In addition, liquidity stress tests, together with complementary sensitivity analysis were also carried out on all banks in the system.  ...  The hypothetical default by any bank in the system would not trigger any "cascade effects".  ... 
doi:10.5089/9781513505589.002 fatcat:ssrurizyp5hdhmdse44zdkrc4a

Default Cascades in Complex Networks: Topology and Systemic Risk

Tarik Roukny, Hugues Bersini, Hugues Pirotte, Guido Caldarelli, Stefano Battiston
2013 Scientific Reports  
We investigate the stability of several benchmark topologies in a simple default cascading dynamics in bank networks.  ...  In particular, scale-free networks can be both more robust and more fragile than homogeneous architectures. This finding has important policy implications.  ...  -FNRS of Belgium's French Community and the National Bank of Belgium.  ... 
doi:10.1038/srep02759 pmid:24067913 pmcid:PMC3783890 fatcat:hfzhkxya5vhzdg2lgp54w25mbu

Hierarchical contagions in the interdependent financial network [article]

William A. Barnett, Xue Wang, Hai-Chuan Xu, Wei-Xing Zhou
2022 arXiv   pre-print
We derive the default cascade model and the fire-sale spillover model in a unified interdependent framework.  ...  We also calculate systemic vulnerability and individual vulnerability, which provide important information for supervision and relevant management actions.  ...  Link to the fire-sale spillover model The model above describes a kind of risk contagion path by default cascade.  ... 
arXiv:2106.14168v2 fatcat:anquetoog5ee7mxrcd3tmcybqy

Systemic Risk in Banking Networks Without Monte Carlo Simulation [chapter]

James P. Gleeson, T. R. Hurd, Sergey Melnik, Adam Hackett
2012 Mathematics in Industry  
The method is applicable to networks with arbitrary degree distributions, permits cascades to be initiated by the default of one or more banks, and includes liquidity risk effects.  ...  Theoretical results are validated by comparison with Monte Carlo simulations, and may be used to assess the stability of a given banking network topology.  ...  Acknowledgements We acknowledge the work of undergraduate students Niamh Delaney and Arno Mayrhofer on an early version of the simulation codes used in this paper.  ... 
doi:10.1007/978-3-642-30904-5_2 fatcat:lnuua3j375flrifukcu4nspytu

The Pricing Puzzle: The Default Term Structure of Collateralised Loan Obligations

Andreas A. Jobst
2003 Social Science Research Network  
from the perspective of credit risk in potential collateral default.  ...  The analysis illustrates the dichotomous effect of loss cascading, as the most junior tranche of CLO transactions exhibits a distinctly different default tolerance compared to the remaining tranches.  ...  By subjecting bank assets to market scrutiny loan securitisation facilitates prudent risk management and diversification as an effective method of redistributing credit risks to investors and broader capital  ... 
doi:10.2139/ssrn.370641 fatcat:o42xj4mo2fe53g7eacbt6keqs4

A study on the impact of risk and competition on bank profitability in Bangladesh

Mohsin AKM, Lei Hongzhen
2019 Zenodo  
and profitability, and the effects of competition on risk-taking and profitability work both directly and indirectly; (iv) there is a cascading relationship among market competition and bank innovation  ...  Bank lending rates were taken as a proxy for interest rate while Return on Assets (ROA) and Return on equity (ROE) were taken as a profitability of the banks.  ...  INTEREST RATE RISKS: The ratio of Interest Sensitive Assets to Interest Sensitive Liabilities PROFITABILITY ANALYSIS Profitability Analysis of AB Bank: Return There is not a cascading relationship  ... 
doi:10.5281/zenodo.3359666 fatcat:rvdutty5nnglhibi2rhgwppn6m

Asset Pricing and Investor Risk in Subordinated Asset Securitisation

Andreas A. Jobst
2005 Social Science Research Network  
Loss sharing between issuers and investors according to a simplified subordination mechanism allows issuers to decompose securitised credit risk exposures into a collection of default sensitive debt securities  ...  with divergent risk profiles and expected investor returns.  ...  Especially financial objectives (including tax optimisation, efficient refinancing cost and rating arbitrage) and risk management objectives (such as the diversification of default risk, liquidity risk  ... 
doi:10.2139/ssrn.703861 fatcat:ooqem6pbqjc7nbvqx3lqixjngq

Three Decades in Econophysics—From Microscopic Modelling to Macroscopic Complexity and Back

Alex Smolyak, Shlomo Havlin
2022 Entropy  
of both approaches and the tools they help develop.  ...  We explore recent contributions to research in Econophysics, switching between Macroscopic complexity and microscopic modelling, showing how each leads to the other and detailing the everyday applicability  ...  This assumption means, on one hand, that the future could not be predicted from the present, and more importantly, risk from movement of assets was easily quantifiable and manageable.  ... 
doi:10.3390/e24020271 pmid:35205566 pmcid:PMC8870777 fatcat:6akeqvud5jbp5c73iega6qziqq

Collateralised Loan Obligations (CLOs) - A Primer

Andreas A. Jobst
2003 Social Science Research Network  
Not only the distinctive properties of CLOs, but also the information economics inherent in the transfer of credit risk will be considered, so that we can equally privilege the critical aspects of security  ...  The following descriptive paper surveys the various types of loan securitisation and provides a working definition of so-called collateralised loan obligations (CLOs).  ...  If asset proceeds and credit defaults are prioritised according to seniority (i.e. subordination through loss cascading), securitisation achieves a close match of the term structure of each tranche with  ... 
doi:10.2139/ssrn.370640 fatcat:6td7x2tvafho7d75lissesof6e
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