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 financial contagion with dynamic interbank liabilities.
We analyze how errors in interbank liabilities affect the clearing vector in financial systems.
Study identifies key firms contributing to systemic risk in Austrian financial network.
The structural default model of Lipton and Sepp, 2009 is generalized for a set of banks with mutual interbank liabilities whose assets are driven by correlated Levy processes with idiosyncratic and common components. The multi-dimensional problem is made tractable via a novel computational method, which generalizes the…
We study the international interbank market through a geometrical and a topological analysis of empirical data. The geometrical analysis of the time series of cross-country liabilities shows that the systematic information of the interbank international market is contained in a space of small dimension, from which a to…
Banks in the interbank network can not assess the true risks associated with lending to other banks in the network, unless they have full information on the riskiness of all the other banks. These risks can be estimated by using network metrics (for example DebtRank) of the interbank liability network which is availabl…
We report a study of a stylized banking cascade model investigating systemic risk caused by counter party failure using liabilities and assets to define banks' balance sheet. In our stylized system, banks can be in two states: normally operating or distressed and the state of a bank changes from normally operating to d…
Financial markets are exposed to systemic risk (SR), the risk that a major fraction of the system ceases to function, and collapses. It has recently become possible to quantify SR in terms of underlying financial networks where nodes represent financial institutions, and links capture the size and maturity of assets (l…
New method reconstructs interbank networks enforcing reciprocity to improve stability and risk prediction.
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…
A simple banking network model is proposed which features multiple waves of bank defaults and is analytically solvable in the limiting case of an infinitely large homogeneous network. The model is a collection of nodes representing individual banks; associated with each node is a balance sheet consisting of assets and …
Interbank lending and borrowing occur when financial institutions seek to settle and refinance their mutual positions over time and circumstances. This interactive process involves money creation at the aggregate level. Coordination mismatch on interbank credit may trigger systemic crises. This happened when, since sum…
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…
Method reconstructs financial networks from aggregate data, revealing critical link density.
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 discuss the systemic risk implied by the interbank exposures reconstructed with the maximum entropy method. The maximum entropy method severely underestimates the risk of interbank contagion by assuming a fully connected network, while in reality the structure of the interbank network is sparsely connected. Here, we…
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 …
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.
We propose a long term portfolio management method which takes into account a liability. Our approach is based on the LQG (Linear, Quadratic cost, Gaussian) control problem framework and then the optimal portfolio strategy hedges the liability by directly tracking a benchmark process which represents the liability. Two…
Proposes a new model to simulate interbank market liquidity risk.
This paper studies optimal investment from the point of view of an investor with longevity-linked liabilities. The relevant optimization problems rarely are analytically tractable, but we are able to show numerically that liability driven investment can significantly outperform common strategies that do not take the li…
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.
Optimal control solves multi-period liability clearing problems.
Study finds environmental liability insurance reduces industrial carbon emissions.
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.
The study shows that limited liability can make banks more stable by choosing less risky assets.
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.
Limited liability reduces leveraged risk in loan portfolio management models.
Unified framework for fixed-income pricing and liability replication.
Dynamic network model forecasts interbank market link formation.
Study examines large banks' role in interbank markets using game theory.
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…
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…
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…
In this paper, we consider the asset-liability management under the mean-variance criterion. The financial market consists of a risk-free bond and a stock whose price process is modeled by a geometric Brownian motion. The liability of the investor is uncontrollable and is modeled by another geometric Brownian motion. W…
Stochastic model for pension insurer assets and liabilities with mortality risk.
Paper assesses GMMB in VAs using FST for accurate net liability calculations.
Optimal interbank lending scheme with probabilistic bank failure constraints.
Study classifies liability insurance policies using machine learning.