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.
Interbank credit can create money, leading to financial instability.
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…
The article presents calculations that prove practical importance of the earlier derived theoretical relationship between the interest rate on the interbank credit market, volume of investment and the quantity of securities tradable on the stock exchange.
We study insolvency cascades in an interbank system when banks are allowed to insure their loans with credit default swaps (CDS) sold by other banks. We show that, by properly shifting financial exposures from one institution to another, a CDS market can be designed to rewire the network of interbank exposures in a way…
This work explores the characteristics of financial contagion in networks whose links distributions approaches a power law, using a model that defines banks balance sheets from information of network connectivity. By varying the parameters for the creation of the network, several interbank networks are built, in which …
Study reveals patterns in daily bank transactions.
We review the main changes in the interbank market after the financial crisis started in August 2007. In particular, we focus on the fixed income market and we analyse the most relevant empirical evidences regarding the divergence of the existing basis between interbank rates with different tenor, such as Libor and OIS…
Reduces complexity of financial contagion dynamics on networks.
Agent-based model shows interbank market's fragility and resilience to crises.
This review of the book "The Challenge of Financial Stability: A New Model and its Applications" by Goodhart C.A.E. and Tsomocos D.P. highlights the potential of the framework of strategic partial default of banks with credit chain on the interbank market for further theoretical and applied research on financial stabil…
The financial crisis clearly illustrated the importance of characterizing the level of 'systemic' risk associated with an entire credit network, rather than with single institutions. However, the interplay between financial distress and topological changes is still poorly understood. Here we analyze the quarterly inter…
Develops a framework to assess systemic risk in the economy using bank-firm network data.
Systemic risk in banking systems remains a crucial issue that it has not been completely understood. In our toy model, banks are exposed to two sources of risks, namely, market risk from their investments in assets external to the banking system and credit risk from their lending in the interbank market. By and large, …
Modelling of contagion in interbank networks is discussed. A model taking into account bow-tie structure and dissasortativity of interbank networks is developed. The model is shown to provide a good quantitative description of the Russian interbank market. Detailed arguments favoring the non-percolative nature of conta…
New method reduces systemic risk underestimation in interbank networks.
We contribute to the understanding of how systemic risk arises in a network of credit-interlinked agents. Motivated by empirical studies we formulate a network model which, despite its simplicity, depicts the nature of interbank markets better than a homogeneous model. The components of a vector Ornstein-Uhlenbeck proc…
Paper introduces balanced payment systems to improve liquidity and risk management.
We represent an exchange economy in terms of statistical ensembles for complex networks by introducing the concept of market configuration. This is defined as a sequence of nonnegative discrete random variables describing the flow of a given commodity from agent to agent . This sequence can be arran…
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…
We introduce a general model for the balance-sheet consistent valuation of interbank claims within an interconnected financial system. Our model represents an extension of clearing models of interdependent liabilities to account for the presence of uncertainty on banks' external assets. At the same time, it also provid…
We propose a new model of the liquidity driven banking system focusing on overnight interbank loans. This significant branch of the interbank market is commonly neglected in the banking system modeling and systemic risk analysis. We construct a model where banks are allowed to use both the interbank and the securities …
It had been believed in the conventional practice that the risk of a bank going bankrupt is lessened in a straightforward manner by transferring the risk of loan defaults. But the failure of American International Group in 2008 posed a more complex aspect of financial contagion. This study presents an extension of the …
Paper uses interbank contagion to predict U.S. bank defaults, finding it highly explanatory.
Optimized execution model using interbank and internal liquidity.
Study reveals multiple core-periphery structures in interbank markets, transforming during financial crises.
In this paper we estimate the propagation of liquidity shocks through interbank markets when the information about the underlying credit network is incomplete. We show that techniques such as Maximum Entropy currently used to reconstruct credit networks severely underestimate the risk of contagion by assuming a trivial…
Modeling liquidity shocks in interbank markets to assess systemic risk.
Proposes a new model to simulate interbank market liquidity risk.
Model shows how banks' fears of future defaults can cause immediate financial stress.
Systemic risks characterizing the Russian overnight interbank market from the network point of view are analyzed.
Study shows self-exciting shocks increase systemic risk in interbank networks.
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…
Study uncovers that loan maturity layers in interbank networks are crucial for understanding their structure and functions.
Modeling financial system dynamics with interbank flows and borrowing.
The interbank market has a natural multiplex network representation. We employ a unique database of supervisory reports of Italian banks to the Banca d'Italia that includes all bilateral exposures broken down by maturity and by the secured and unsecured nature of the contract. We find that layers have different topolog…
Study confirms eurozone interbank market stability but finds higher collateral reuse.
The study identifies relationship lending in interbank markets using statistical tests.
Dynamic network model forecasts interbank market link formation.
Study examines large banks' role in interbank markets using game theory.
Model financial contagion with dynamic interbank liabilities.
Optimal interbank lending scheme with probabilistic bank failure constraints.
Model measures diversification in Austrian interbank market, showing increased homogeneity.
The manipulation of LIBOR by a group of banks became one of the major blows to the remaining confidence in financial industry. Yet, despite an enormous amount of popular literature on the subject, rigorous time-series studies are few. In my paper, I discuss the following hypothesis. Namely, if we should assume for a st…
An interbank market lets participants pool the risk arising from the combination of illiquid investments and random withdrawals by depositors. But it also creates the potential for one bank's failure to trigger off avalanches of further failures. We simulate a model of interbank lending to study the interplay of these …
Study connects bank default models using dynamic contagion.
We use daily data on bilateral interbank exposures and monthly bank balance sheets to study network characteristics of the Russian interbank market over Aug 1998 - Oct 2004. Specifically, we examine the distributions of (un)directed (un)weighted degree, nodal attributes (bank assets, capital and capital-to-assets ratio…
Paper studies central bank's strategy to control systemic risk in interbank system.
Model assesses how supply chain disruptions affect financial stability.