Systemic Risk in Networks

Detering, Nils; Meyer‐Brandis, Thilo; Παναγιώτου, Κωνσταντίνος; Ritter, Daniel

doi:10.1007/978-3-030-26814-5_5

Cited by 4 publications

(6 citation statements)

References 25 publications

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“…A key theme of both, the literature and the metrics, is default contagion, the risk that the default of one bank spreads to another. The study of how defaults spread is closely related to correlations of risk in the system and has been studied extensively, see e.g., Caccioli et al (2015), Detering et al (2016), and Pastorino and Uberti (2023).…”

Section: Central Clearing and Systemic Risk Regulation State Of The ...mentioning

confidence: 99%

Computing the impact of central clearing on systemic risk

Nowaczyk,

O'Halloran

2024

Front. Artif. Intell.

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The paper uses a graph model to examine the effects of financial market regulations on systemic risk. Focusing on central clearing, we model the financial system as a multigraph of trade and risk relations among banks. We then study the impact of central clearing by a priori estimates in the model, stylized case studies, and a simulation case study. These case studies identify the drivers of regulatory policies on risk reduction at the firm and systemic levels. The analysis shows that the effect of central clearing on systemic risk is ambiguous, with potential positive and negative outcomes, depending on the credit quality of the clearing house, netting benefits and losses, and concentration risks. These computational findings align with empirical studies, yet do not require intensive collection of proprietary data. In addition, our approach enables us to disentangle various competing effects. The approach thus provides policymakers and market practitioners with tools to study the impact of a regulation at each level, enabling decision-makers to anticipate and evaluate the potential impact of regulatory interventions in various scenarios before their implementation.

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Section: Central Clearing and Systemic Risk Regulation State Of The ...mentioning

confidence: 99%

Computing the impact of central clearing on systemic risk

Nowaczyk,

O'Halloran

2024

Front. Artif. Intell.

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“…Both approaches can be viewed as mechanistic interaction models in which rational or strategic behavior of agents is typically not mirrored. This is the focus of the third approach, game-theoretic models 11 See [35]. 12 See, e.g., the discussion in Sect.…”

Section: Systemic Cyber Risksmentioning

confidence: 99%

“…However, the described approaches do not yet cover the full complexity of cyber risk such that further (scientific) efforts are necessary. In this section, we explain and suggest suitable pricing techniques 35 tailored to the three different components of cyber risk.…”

Section: Pricing Cyber Insurancementioning

confidence: 99%

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Modeling and pricing cyber insurance

et al. 2023

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The paper provides a comprehensive overview of modeling and pricing cyber insurance and includes clear and easily understandable explanations of the underlying mathematical concepts. We distinguish three main types of cyber risks: idiosyncratic, systematic, and systemic cyber risks. While for idiosyncratic and systematic cyber risks, classical actuarial and financial mathematics appear to be well-suited, systemic cyber risks require more sophisticated approaches that capture both network and strategic interactions. In the context of pricing cyber insurance policies, issues of interdependence arise for both systematic and systemic cyber risks; classical actuarial valuation needs to be extended to include more complex methods, such as concepts of risk-neutral valuation and (set-valued) monetary risk measures.

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“…Furthermore, apart from work based on variations of the Eisenberg and Noe (2001) model, there are also other network-based approaches to systemic risk. We refer to Castiglionesi and Eboli (2015) for the usage of flow network techniques, to Fouque and Sun (2013), Kley et al (2015) and Chong and Klüppelberg (2017) for models relying on stochastic differential equations, and to Amini et al (2016) and Detering et al (2017) for contagion analyses on large random graphs. While the analysis in Castiglionesi and Eboli (2015) is again deterministic, the other papers rely on probabilistic approaches that only apply to stylized or limiting networks.…”

Section: Introductionmentioning

confidence: 99%

Contagion in Financial Systems: A Bayesian Network Approach

Chong¹,

Klüppelberg²

2018

SIAM J. Finan. Math.

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We develop a structural default model for interconnected financial institutions in a probabilistic framework. For all possible network structures we characterize the joint default distribution of the system using Bayesian network methodologies. Particular emphasis is given to the treatment and consequences of cyclic financial linkages. We further demonstrate how Bayesian network theory can be applied to detect contagion channels within the financial network, to measure the systemic importance of selected entities on others, and to compute conditional or unconditional probabilities of default for single or multiple institutions.

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Systemic Risk in Networks

Cited by 4 publications

References 25 publications

Computing the impact of central clearing on systemic risk

Computing the impact of central clearing on systemic risk

Modeling and pricing cyber insurance

Contagion in Financial Systems: A Bayesian Network Approach

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