Extends contagion models to include direct and indirect impacts of defaults on the environment.
problem Capturing the impact of defaults on a broader economy.
method Introduces a new model allowing direct and indirect contagion within and from a default system.
result Shows how defaults within a system can affect the environment and vice versa.
In spite of the growing theoretical literature on cascades of failures in interbank lending networks, empirical results seem to suggest that networks of direct exposures are not the major channel of financial contagion. In this paper we show that networks of interbank exposures can however significantly amplify contagi…
This study quantifies systemic risk from overlapping portfolios in the Mexican financial system.
problem Systemic risk from indirect interconnections between financial institutions.
method Represented the Mexican financial system as a bipartite network of securities and financial institutions; quantified systemic risk from overlapping portfolios.
result Total systemic risk levels underestimated by up to 50% when only direct exposures are considered.
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…
Study combines intra-risk and contagion risk for SME bankruptcy prediction.
problem Predicting bankruptcy risk of SMEs considering both intra-risk and contagion risk.
method Proposes a novel model using Graph Neural Networks to combine intra-risk and contagion risk.
result Model outperforms state-of-the-art methods in bankruptcy prediction.
Propagation of balance-sheet or cash-flow insolvency across financial institutions may be modeled as a cascade process on a network representing their mutual exposures. We derive rigorous asymptotic results for the magnitude of contagion in a large financial network and give an analytical expression for the asymptotic …
Modeling financial contagion through bank networks, revealing solvency correlations.
problem Understanding how financial shocks propagate through interconnected banks.
method Simulated financial network of 100 banks, randomly generated with varying link probabilities, and shocks applied to 15 banks.
result Ranges of probability values and banks' solvency are positively correlated.
Study models contagion in Bitcoin network using Google matrices.
problem Analyzing financial contagion in Bitcoin network.
method Constructed Google matrices, calculated PageRank and CheiRank, modeled bankruptcy threshold.
result Phase transition at κ≈0.1, showing bankruptcy for most users.
We consider the problem of influence maximization in fixed networks for contagion models in an adversarial setting. The goal is to select an optimal set of nodes to seed the influence process, such that the number of influenced nodes at the conclusion of the campaign is as large as possible. We formulate the problem as…
Graph Cascades rewire graphs to improve structure-aware learning.
problem Improving graph neural networks and transformers for structure-aware learning.
method Graph Cascades uses contagion-based diffusion processes to construct an auxiliary graph with reinforced edges.
result Graph Cascades improves node-classification benchmarks across various graph types.
Analyzing a comprehensive news dataset, we document that joint news coverage triggers attention contagion, causing temporarily inflated valuations for affected stocks. Tracing SEC EDGAR visits from unique IPs, we provide direct evidence of attention spillovers between stocks. Stocks with greater joint news coverage exh…
The question we address here is of whether phenomena of collective bankruptcies are related to self-organized criticality. In order to answer it we propose a simple model of banking networks based on the random directed percolation. We study effects of one bank failure on the nucleation of contagion phase in a financia…
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…
Model shows how financial contagion spreads through complex interdependencies.
problem Understanding how banks fail in an interconnected financial system.
method Unified model combining direct and indirect dependencies; three reconstruction methods.
result Hierarchical cascades reveal dominant banks in failures.
Study asset price bubbles using random matching and stochastic factors.
problem Understanding and modeling asset price bubbles through investor contagion.
method Developed a stochastic model of liquidity-based asset price bubbles using random matching mechanism.
result Derived conditions for arbitrage-free financial market models.
Method reconstructs networks from contagion dynamics.
problem Fitting contagion models assumes simple dynamics, ignoring complex contagions.
method Nonparametric method to reconstruct network and dynamics from node states.
result Networks are easier to reconstruct through complex contagions in dense or saturated networks.
Contagion maps detect network structure in noisy data.
problem Detecting underlying manifold structure in noisy data.
method Using activation times in threshold contagions to map network nodes to high-dimensional space.
result Contagion maps reliably detect manifold structure in noisy data, while Isomap fails.
Causal-NECO VaR improves financial risk assessment under market turbulence.
problem Inaccurate risk assessment in volatile markets.
method Causal Network Contagion Value at Risk (Causal-NECO VaR) using causal network framework.
result Robust and invariant predictive power in unstable financial environments.
New method detects currency contagion sources using causal inference.
problem Lack of causal interpretation in quantifying contagion among currencies.
method Network-based causal inference to identify contagion paths.
result Identifies sources of contagion and diversification options.
Multiplex Network Hawkes model for systemic risk measurement
problem Investigate how contagion in financial networks is affected by different transmission channels
method Multiplex Network Hawkes model
result Sparse contagion pathways, with systemic-risk transmission concentrated in outward flows from a small number of influential institutions
Study examines financial contagion at community level, finding increased contagion density and widespread transmission.
problem Understanding and managing financial contagion in interconnected markets.
method High-frequency data, Louvain community detection, Vector Autoregression, Tracy-Widom random matrix theory.
result Contagion density increases over time, and there is no significant difference between intra- and inter-community contagion.
Study identifies contagion in aggregated defaults despite environmental changes.
problem Identify contagion in aggregated default counts with fluctuating probabilities.
method Compare three contagion mechanisms (Davis-Lo, Torri, Vasicek) under i.i.d. and hierarchical specifications.
result Threshold contagion is largely absorbed into environmental heterogeneity, while cumulative contagion leaves a persistent signature.
Modeling dependent defaults with contagion effects.
problem Dependent defaults and their contagion effects.
method First passage time approach to structural framework.
result A new method to model default contagion.
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 significantly change the dynamics of the overall system. We explicitely insert a term descr…
Study on financial impacts of zombie outbreak on economy.
problem Financial and economic consequences of a zombie epidemic.
method Epidemiological modeling and financial computation.
result GDP losses of 23.44% and financial market drop of 29.30% in a major industrialized nation.
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…
Paper uses interbank contagion to predict U.S. bank defaults, finding it highly explanatory.
problem Predicting U.S. bank defaults using interbank contagion.
method Regression and neural network models were used to analyze U.S. commercial bank data.
result Interbank contagion is highly explanatory in default prediction, often outperforming established metrics.
This paper examines how the U.S.--China trade war affects stock markets, finding evidence of financial contagion and changes in risk channels.
problem The impact of the U.S.--China trade war on stock markets and financial contagion.
method Developed a novel jump-diffusion process to account for risk contagion, using high-frequency financial data and quasi-maximum likelihood estimator.
result Evidence of financial contagion from the U.S. to China, with changes in risk contagion channels.
Study financial contagion and risk in sparse networks with directed edges.
problem Analyzing systemic risk in sparse financial networks with balance-sheet interactions.
method Linear fraction of institutions with zero out-degree, sender-truncated subgraph G_sh, adversarial and random systemic events, explicit fan-in accumulation bound.
result Maximal forward reachability in G_sh is O(log n) with high probability in the subcritical regime, and multi-hit defaults are negligible in the supercritical regime.
This paper investigates two mechanisms of financial contagion that are, firstly, the correlated exposure of banks to the same source of risk, and secondly the direct exposure of banks in the interbank market. It will consider a random network of banks which are connected through the inter-bank market and will discuss t…
This thesis models financial contagion and stability, providing insights for systemic risk management.
problem Systemic risk in financial networks through default contagion and fire sales.
method Developed mathematical models for default contagion in weighted financial networks, derived asymptotic expressions for total damage.
result Explicit asymptotic expressions for total damage and stability criteria for financial systems.
Study on default clustering in large networks using graph theory.
problem Understanding the impact of defaults in large interconnected systems.
method Law of large numbers applied to graph dynamics, singular value decomposition of adjacency matrix.
result Identification of components with highest contagion impact using eigenvalues.
Study connects bank default models using dynamic contagion.
problem Understanding default contagion in heterogeneous interbank systems.
method Proposes a dynamic default contagion model with endogenous early defaults for a finite set of banks, reformulating as a stochastic particle system.
result Existence of clearing systems and continuity of the system response for the mean-field problem.
Complex contagion model explains financial fire sales through continuous asset prices.
problem Modeling financial fire sales with a continuum of asset prices.
method Developed a threshold model of continuous-state cascades using real values for asset prices.
result Discretization approach accurately replicates the distribution of defaulted banks and asset prices.
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 is shown that a simple threshold model can replicate the size and the frequency o…
iConViz helps banks manage default contagion risk in networked loans.
problem Managing default contagion risk in networked loans during economic downturns.
method Developed iConViz, an interactive tool, and a novel metric (contagion effect) to quantify and analyze the risk.
result iConViz facilitates closed-loop analysis and helps avoid ad hoc methods.
Study uses Hawkes processes to analyze stock market contagion in China.
problem Understanding contagion in Chinese stock market.
method Fitting Hawkes processes to daily returns and sector indices.
result Identifies long-term dependencies and trending patterns in sector indices.
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 study quantifies systemic importance in global banks using a continuous framework that amplifies localized shocks.
problem Analyzing financial contagion and systemic risk in global banks.
method Developed a continuous framework incorporating geographic proximity and interbank network linkages, using a master equation and Feynman-Kac representation.
result The amplification factor correctly identifies systemically important institutions and predicts crisis outcomes.
Model financial contagion with dynamic interbank liabilities.
problem Model financial contagion with time dynamics of interbank liabilities.
method Generalized Eisenberg-Noe model with time dynamics, separating cash and capital accounts.
result Distinguish between delinquency and default, insolvency and illiquidity.
Many new models for measuring financial contagion have been presented recently. While these models have not been specified for investment funds directly, there are many similarities that could be explored to extend the models. In this work we explore ideas developed about financial contagion to create a network of inve…
Systemic risks of default contagion in the Russian interbank market are investigated. The analysis is based on considering the bow-tie structure of the weighted oriented graph describing the structure of the interbank loans. A probabilistic model of interbank contagion explicitly taking into account the empirical bow-t…
Model shows worldwide trade crises can be localized or global, depending on trade balance.
problem Understanding and predicting worldwide trade crises.
method Modeling worldwide trade network using Google matrix analysis and bankruptcy threshold.
result Crisis contagion is localized for high trade balance, global for low trade balance.
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…
Study uses epidemiological models to analyze financial contagion risks.
problem Analyzing and controlling contagion risks in the global financial network.
method Formulated an optimal control problem based on infection spread models.
result The approach effectively describes the world economy's financial contagion.
Financial networks reveal systemic risk, suggesting new regulatory strategies.
problem Global financial interconnectedness and inadequacy of traditional risk models.
method Network-based models of financial systems to understand contagion and risk.
result Financial networks exhibit 'robust-yet-fragile' properties, informing cost-effective regulation.
Optimal credit and consumption strategies in a switching market with default contagion.
problem Optimal portfolio and consumption decisions in a credit market with default contagion.
method Cobb-Douglas utility, recursive ODE system, backward solution from all-default state.
result Existence and uniqueness of optimal feedback controls, verification theorem.
Measures risk contagion in financial networks using CoVaR.
problem Assessing stability of complex financial systems.
method Financial network model with bipartite graph of institutions and assets, heavy-tailed distributions, copula models, CoVaR and ECI.
result Proposes the Extreme CoVaR Index (ECI) for capturing risk contagion strength.