A locally-built, LLM-digested index of recent arXiv papers in quant finance, geometry/topology, and statistical ML — keyword search served straight from SQLite on this machine.
Model shows worldwide trade crises can be localized or global, depending on trade balance.
The 2008 financial crisis revealed banking consolidation paradoxically increased systemic fragility and global financial contagion with negligible spatial decay.
This study quantifies systemic importance in global banks using a continuous framework that amplifies localized shocks.
New method detects currency contagion sources using causal inference.
This work develops an agent-based model for the study of how the leverage through the use of repurchase agreements can function as a mechanism for the propagation and amplification of financial shocks in a financial system. Based on the analysis of financial intermediaries in the repo and interbank lending markets duri…
This study presents an ANWSER model (asset network systemic risk model) to quantify the risk of financial contagion which manifests itself in a financial crisis. The transmission of financial distress is governed by a heterogeneous bank credit network and an investment portfolio of banks. Bankruptcy reproductive ratio …
This paper proposes an empirical test of financial contagion in European equity markets during the tumultuous period of 2008-2011. Our analysis shows that traditional GARCH and Gaussian stochastic-volatility models are unable to explain two key stylized features of global markets during presumptive contagion periods: s…
Liberalization of electricity markets has increasingly created the need for understanding the volatility and correlation structure between electricity and financial markets. This work reveals the existence of structural changes in correlation patterns among these two markets and links the changes to both fundamentals 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 triggering each other through contagion. Although credit default swaps have radical…
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 portfolios and leverage, and we show how it can be understood in terms of a generalized b…
The global crisis of 2008 provoked a heightened interest among scientists to study the phenomenon, its propagation and negative consequences. The process of modelling the spread of a virus is commonly used in epidemiology. Conceptually, the spread of a disease among a population is similar to the contagion process in e…
This thesis models financial contagion and stability, providing insights for systemic risk management.
How, and to what extent, does an interconnected financial system endogenously amplify external shocks? This paper attempts to reconcile some apparently different views emerged after the 2008 crisis regarding the nature and the relevance of contagion in financial networks. We develop a common framework encompassing seve…
This paper contributes to the literature on international stock market comovements and contagion. The novelty of our approach lies in application of wavelet tools to high-frequency financial market data, which allows us to understand the relationship between stock markets in a time-frequency domain. While major part of…
Model shows how confidence feedback can lead to different crisis outcomes.
This paper provides a framework for modeling the financial system with multiple illiquid assets during a crisis. This work generalizes the paper by Amini, Filipovic and Minca (2016) by allowing for differing liquidation strategies. The main result is a proof of sufficient conditions for the existence of an equilibrium …
This study uses high-frequency data to identify early warning signals for bank crises.
This paper analyzes how banking risks spread through sentiment and policy shocks.
We propose a novel approach and an empirical procedure to test direct contagion of growth rate in a trade credit network of firms. Our hypotheses are that the use of trade credit contributes to contagion (from many customers to a single supplier - "many to one" contagion) and amplification (through their interaction wi…
Modeling default contagion and systemic risk using a balls-and-bins approach.
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 other defaulting firms (a domino effect being also possible). The spontaneous defau…
Using data from a sample of 28 representatives countries, we propose a classification of currency crises consequences based on the ultrametric analysis of the real exchange rate movements time series, without any further assumption. By using the matrix of synchronous linear correlation coefficients and the appropriate …
Solomon and Golo [1] have recently proposed an autocatalytic (self-reinforcing) feedback model which couples a macroscopic system parameter (the interest rate), a microscopic parameter that measures the distribution of the states of the individual agents (the number of firms in financial difficulty) and a peer-to-peer …
We analyse the importance of international relations between countries on the financial stability. The contagion effect in the network is tested by implementing an epidemiological model, comprising a number of European countries and using bilateral data on foreign claims between them. Banking statistics of consolidated…
This paper provides a general framework for modeling financial contagion in a system with obligations in multiple illiquid assets (e.g., currencies). In so doing, we develop a multi-layered financial network that extends the single network of Eisenberg and Noe (2001). In particular, we develop a financial contagion mod…
Financial contagion from liquidity shocks has being recently ascribed as a prominent driver of systemic risk in interbank lending markets. Building on standard compartment models used in epidemics, in this work we develop an EDB (Exposed-Distressed-Bankrupted) model for the dynamics of liquidity shocks reverberation be…
The paper models systemic risk in European and U.S. banks using factor copulas.
Common asset holding by financial institutions, namely portfolio overlap, is nowadays regarded as an important channel for financial contagion with the potential to trigger fire sales and thus severe losses at the systemic level. In this paper we propose a method to assess the statistical significance of the overlap be…
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 of exposures among banks. A potential loss distribution is obtained through a m…
In this paper we use the Brooks and Hinich cross-bicorrelation test in order to uncover nonlinear dependence periods between USA Standard and Poor 500 (SP500), used as benchmark, and six Latin American stock markets indexes: Mexico (BMV), Brazil (BOVESPA), Chile (IPSA), Colombia (COLCAP), Peru (IGBVL) and Argentina (ME…
Financial networks reveal systemic risk, suggesting new regulatory strategies.
Banking system crises are complex events that in a short span of time can inflict extensive damage to banks themselves and to the external economy. The crisis literature has so far identified a number of distinct effects or channels that can propagate distress contagiously both directly within the banking network itsel…
This work uses the stocks of the 197 largest companies in the world, in terms of market capitalization, in the financial area in the study of causal relationships between them using Transfer Entropy, which is calculated using the stocks of those companies and their counterparts lagged by one day. With this, we can asse…
Using particle system methodologies we study the propagation of financial distress in a network of firms facing credit risk. We investigate the phenomenon of a credit crisis and quantify the losses that a bank may suffer in a large credit portfolio. Applying a large deviation principle we compute the limiting distribut…
The crowd panic and its contagion play non-negligible roles at the time of the stock crash, especially for China where inexperienced investors dominate the market. However, existing models rarely consider investors in networking stocks and accordingly miss the exact knowledge of how panic contagion leads to abrupt cras…
Since the latest financial crisis, the idea of systemic risk has received considerable interest. In particular, contagion effects arising from cross-holdings between interconnected financial firms have been studied extensively. Drawing inspiration from the field of complex networks, these attempts are largely unaware o…
Various works have already showed that common shocks and cross-country financial linkages caused the banking systems of several countries to be highly interconnected with the result that during bad times, banking crises may arise simultaneously in different countries. Our aim is to provide further evidence on the topic…
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 network model that combines the default and liquidity stress mechanisms into a "…
Credit and liquidity risks represent main channels of financial contagion for interbank lending markets. On one hand, banks face potential losses whenever their counterparties are under distress and thus unable to fulfill their obligations. On the other hand, solvency constraints may force banks to recover lost funding…
Method reconstructs networks from contagion dynamics.
Contagion maps detect network structure in noisy data.
To mitigate potential contagion from future banking crises, the European Commission recently proposed a framework which would provide for the of bank creditors in the event of failure. In this study, we examine this framework retrospectively in the context of failed European banks during the global f…
Study examines financial contagion at community level, finding increased contagion density and widespread transmission.
Study identifies contagion in aggregated defaults despite environmental changes.
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 and past decade has shown that one important cause of instability in global market…
Paper uses interbank contagion to predict U.S. bank defaults, finding it highly explanatory.
This paper examines how the U.S.--China trade war affects stock markets, finding evidence of financial contagion and changes in risk channels.
Study reveals risk transmission channels among Chinese sectors.