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.
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.
Study confirms eurozone interbank market stability but finds higher collateral reuse.
The Interbank Offered Rate is a vital benchmark interest rate in the financial markets of every country to which financial contracts are tied. In the light of the recent LIBOR manipulation incident, this paper seeks to address the fear that Interbank Offered Rate are entirely controlled by the bank. The paper will focu…
Study examines large banks' role in interbank markets using game theory.
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…
Develops a new model for multiple yield curves using branching processes.
In our model, private actors with interbank cash flows similar to, but nore general than (Carmona, Fouque, Sun, 2013) borrow from the outside economy at a certain interest rate, controlled by the central bank, and invest in risky assets. Each private actor aims to maximize its expected terminal logarithmic utility. The…
Relationship lending is broadly interpreted as a strong partnership between a lender and a borrower. Nevertheless, we still lack consensus regarding how to quantify the strength of a lending relationship, while simple statistics such as the frequency and volume of loans have been used as proxies in previous studies. He…
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.
Recent news cast doubts on London Interbank Offered Rate (LIBOR) integrity. Given its economic importance and the delay with which authorities realize about this situation, we aim to find an objective method in order to detect departures in the LIBOR rate that from the expected behavior. We analyze several interest rat…
According to the definition of the London Interbank Offered Rate (LIBOR), contributing banks should give fair estimates of their own borrowing costs in the interbank market. Between 2007 and 2009, several banks made inappropriate submissions of LIBOR, sometimes motivated by profit-seeking from their trading positions. …
Optimized execution model using interbank and internal liquidity.
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…
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.
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…
We propose a simple model of the banking system incorporating a game feature where the evolution of monetary reserve is modeled as a system of coupled Feller diffusions. The Markov Nash equilibrium generated through minimizing the linear quadratic cost subject to Cox-Ingersoll-Ross type processes creates liquidity and …
Interbank markets are often characterised in terms of a core-periphery network structure, with a highly interconnected core of banks holding the market together, and a periphery of banks connected mostly to the core but not internally. This paradigm has recently been challenged for short time scales, where interbank ma…
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…
We propose a multifractal model for short-term interest rates. The model is a version of the Markov-Switching Multifractal (MSM), which incorporates the well-known level effect observed in interest rates. Unlike previously suggested models, the level-MSM model captures the power-law scaling of the structure functions a…
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…
We study the frictions in the patterns of trades in the Euro money market. We characterize the structure of lending relations during the period of recent financial turmoil. We use network-topology method on data from overnight transactions in the Electronic Market for Interbank Deposits (e-Mid) to investigate on two ma…
This paper models short rates with jumps using PDEs.
Since the 2007-2009 financial crisis, substantial academic effort has been dedicated to improving our understanding of interbank lending networks (ILNs). Because of data limitations or by choice, the literature largely lacks multiple loan maturities. We employ a complete interbank loan contract dataset to investigate w…
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.
In this paper we consider a mean-field model of interacting diffusions for the monetary reserves in which the reserves are subjected to a self- and cross-exciting shock. This is motivated by the financial acceleration and fire sales observed in the market. We derive a mean-field limit using a weak convergence analysis …
We develop a maximum penalized quasi-likelihood estimator for estimating in a nonparametric way the diffusion function of a diffusion process, as an alternative to more traditional kernel-based estimators. After developing a numerical scheme for computing the maximizer of the penalized maximum quasi-likelihood function…
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.
The paper models reciprocity in interbank markets using a statistical null model.
The global financial crisis in 2007-2009 demonstrated that systemic risk can spread all over the world through a complex web of financial linkages, yet we still lack fundamental knowledge about the evolution of the financial web. In particular, interbank credit networks shape the core of the financial system, in which …
Paper examines pricing and hedging for cross-currency swaps referencing backward-looking rates.
The paper examines how CoCo bonds can enhance financial stability in interconnected banking systems.
We analyze cascades of defaults in an interbank loan market. The novel feature of this study is that the network structure and the size distribution of banks are derived from empirical data. We find that the ability of a defaulted institution to start a cascade depends on an interplay of shock size and connectivity. Fu…
Study optimizes interbank lending and borrowing to reduce systemic risk.
Study compares empirical systemic risk with balance sheet risk in interbank networks.
The interbank market is considered one of the most important channels of contagion. Its network representation, where banks and claims/obligations are represented by nodes and links (respectively), has received a lot of attention in the recent theoretical and empirical literature, for assessing systemic risk and identi…
We propose a dynamic network model where two mechanisms control the probability of a link between two nodes: (i) the existence or absence of this link in the past, and (ii) node-specific latent variables (dynamic fitnesses) describing the propensity of each node to create links. Assuming a Markov dynamics for both mech…
Assessing the stability of economic systems is a fundamental research focus in economics, that has become increasingly interdisciplinary in the currently troubled economic situation. In particular, much attention has been devoted to the interbank lending market as an important diffusion channel for financial distress d…