Network Entropy and Systemic Risk in Dynamic Banking Systems

He, Liang; Li, Shouwei

doi:10.1155/2017/1852897

Cited by 9 publications

(9 citation statements)

References 39 publications

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“…We first investigate whether this kind of entropy is effective to detect the network structural variance in time series. [9,10]. Each financial crisis indicates the significant variance in entropy associated with dramatic network structural changes.…”

Section: Resultsmentioning

confidence: 99%

“…Recently, an investigation of the thermodynamic properties has been performed by physicists by using the perspective and theoretical results of the network theory [5,7,10]. Network entropy has been extensively used to characterise the salient features of the structure in the network dynamics [9]. For example, the von Neumann entropy can be used as an effective characterisation of network structure, commencing from a quantum analogue in which the Laplacian matrix plays the role of the density matrix [11,12].…”

Section: Related Literaturementioning

confidence: 99%

“…They only introduce the global information of a specific period. Since the strong correlation in the time evolution of the stock market, it is significant to study the statistical properties of dynamic networks, especially during the financial crisis [4,9,10]. Recently, a robust method introduces the entropic measurement to quantify the network characterisation [9,11,12].…”

Section: Introductionmentioning

confidence: 99%

“…Since the strong correlation in the time evolution of the stock market, it is significant to study the statistical properties of dynamic networks, especially during the financial crisis [4,9,10]. Recently, a robust method introduces the entropic measurement to quantify the network characterisation [9,11,12]. For example, the von Neumann entropy gives a qualitative expression for the entropy associated with the degree combinations of nodes forming edges [11][12][13].…”

Section: Introductionmentioning

confidence: 99%

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Thermodynamic Entropy in Quantum Statistics for Stock Market Networks

2019

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The stock market is a dynamical system composed of intricate relationships between financial entities, such as banks, corporations, and institutions. Such a complex interactive system can be represented by the network structure. The underlying mechanism of stock exchange establishes a time-evolving network among companies and individuals, which characterise the correlations of stock prices in the time sequential trades. Here, we develop a novel technique in quantum statistics to analyse the financial market evolution. We commence from heat bath analogy where the normalised Laplacian matrix plays the role of the Hamiltonian operator of the network. The eigenvalues of the Hamiltonian specify energy states of the network. These states are occupied by either indistinguishable bosons or fermions with corresponding Bose-Einstein and Fermi-Dirac statistics. Using the relevant partition functions, we develop the thermodynamic entropy to explore dynamic network characterisations. We conduct the experiments to apply this novel method to identify the significant variance in network structure during the financial crisis. The thermodynamic entropy provides an excellent framework to represent the variations taking place in the stock market.

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Section: Resultsmentioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Thermodynamic Entropy in Quantum Statistics for Stock Market Networks

2019

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“…Besides, Barucca et al [20] made extended clearing models of interdependent liabilities by considering the uncertainty of banks' external assets, and presented a comprehensive modeling framework for systemic risk in the interbank market. He and Li [21] investigated the systemic risk in the interbank market with different network topologies. They found that network entropy was positively correlated with the effect of systemic risk in the three types of interbank networks.…”

Section: Introductionmentioning

confidence: 99%

Systemic Risk Caused by the Overlapping Portfolios of Banks Under a Bilateral Network

Gao

Fan

2021

Front. Phys.

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Frequent financial crises and economic globalization have made systemic risk a growing Research Topic. This paper constructs a dynamic banking system model based on the bank-asset bilateral network. By collecting the balance sheet and portfolio data of 47 Chinese listed banks in 2018, the paper firstly empirically analyses the impact of external shocks, the price-cutting effect, and the proportion of various assets held by banks to their total assets on the systemic risk of the banking system. The risk preference coefficient and systemic shock are then introduced to construct the banks' quantitative portfolio strategy model to study its optimal investment. It has been found that the greater the external shock and the stronger the price-cutting effect, the higher the systemic risk. Moreover, the external shock and price-cutting effect will have a superimposed effect within a specific range, and systemic risk will increase significantly. The asset classes of the Chinese banking system have a different sensitivity to external shocks, among which loan assets are the most sensitive. Further studies reveal an inflection point of risk preference, resulting in banks' expected return “increasing first and then decreasing.” The higher the debt-asset ratio and the stronger the banks' risk tolerance, the more aggressive investment strategies banks can choose to achieve high returns. This paper provides a reference for the banking industry to react to shocks and analyze systemic risk.

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Introduction: The Context of Financial Innovations

Mendes‐Da‐Silva

2018

Individual Behaviors and Technologies for Financial Innovations

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Network Entropy and Systemic Risk in Dynamic Banking Systems

Cited by 9 publications

References 39 publications

Thermodynamic Entropy in Quantum Statistics for Stock Market Networks

Thermodynamic Entropy in Quantum Statistics for Stock Market Networks

Systemic Risk Caused by the Overlapping Portfolios of Banks Under a Bilateral Network

Introduction: The Context of Financial Innovations

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