Can bank interaction during rating measurement of micro and very small enterprises ipso facto Determine the collapse of PD status?

This paper begins with an analysis of trends - over the period 2012-2018 - for total bank loans, non-performing loans, and the number of active, working enterprises. A review survey was done on national data from Italy with a comparison developed on a local subset from the Sardinia Region. Empirical evidence appears to support the hypothesis of the paper: can the rating class assigned by banks - using current IRB and A-IRB systems - to micro and very small enterprises, whose ability to replace financial resources using endogenous means is structurally impaired, ipso facto orient the results of performance in the same terms of PD assigned by the algorithm, thereby upending the principle of cause and effect? The thesis is developed through mathematical modeling that demonstrates the interaction of the measurement tool (the rating algorithm applied by banks) on the collapse of the loan status (default, performing, or some intermediate point) of the assessed micro-entity. Emphasis is given, in conclusion, to the phenomenon using evidence of the intrinsically mutualistic link of the two populations of banks and (micro) enterprises provided by a system of differential equation

A SURVEY ON MACROECONOMIC DATA IN THE EUROZONE AND A CONTROL DASHBOARD MODEL BASED ON THE KAM AND NEKHOROSHEV THEOREMS AND THE HÉNON ATTRACTOR

Starting from the examination of the main macroeconomic parameters that have characterized the structure of the Eurozone in the last decade – and their systemization – our aim was to apply a model suitable for describing its dynamics. In particular, the Kolmogorov-Arnold-Moser theorem was adapted to the question, up to low level perturbations caused by negative economic conditions, the first symptoms of financial or exogenous crises, and other turbulence affecting the economy. We then applied Nekhoroshev's theorem to represent the phenomena characterized by the occurrence of stronger resonance as well as the reactions of the system to the control and recovery measures implemented by the ECB Governing Council. The goal of the paper is to propose the adoption of a systemic stability planning and control dashboard – also suitable for the support and stimulation of growth cycles – with attention to optimal performance, which can be identified in compliance with (or restoration of) the macroeconomic trajectories determined in the model by the Hénon Attractor. The proposed scheme may find useful application – both for evaluation and operational purposes – in the current period, characterized by the complex and compromised scenario brought about by the SARS-COVID2 pandemic emergency, which has obviously imposed structured measures to support the economy

The stochastic dynamics of business evaluations using Markov models

Current assessments of credit and financial risk based on deterministic analyses provide only a limited understanding of current and future solvency rates. This paper offers an alternate model using two-state Markov chains that produces a more comprehensive and accurate system and allows for broader and more complex analyses of present and future situations. Building off findings made in the development of the Altman Z-score, this proposed model applies stochastic processes and probability spaces to multivariate normal populations to account for the uncertainty of market conditions. Where one-step Markov chains demonstrate the relevance of this model for finite and infinite variables, the player’s downfall theorem indicates that the nth value is only dependent on the value before it. Using the Chapman-Kolmogorov equation, multi-step transition probabilities then lead to the final two-state Markov chain

Understanding bank money through a quantum macroeconomic theory of credit. Some theoretical considerations on microcredit

Reframing risk assessments of microcredit, this paper expands on quantum macroeconomic conceptions of money, output and income to argue that production is endogenously financed. Building on the works of Schmitt, Cencini and Rossi, the conceptual logic of quantum monetary theory traces the origins of a (micro)firm’s finances to its consequent production. Production is then a self-sustaining system, and (micro)firms should not, in fact, dependent on worthiness decision made by banks for credit and funding. With especial focus on microfinance (and microcredit specifically), the socio-economic system requires restructuring to accommodate understandings of production as endogenous and microcredit as sustainable. This includes reforming national accounting practices to accurately represent possibilities of insolvency, themselves much reduced by the recognition of production as endogenous

Fractal analysis of Dow Jones industrial index returns

The Dow Jones Industrial Average 30 (DJIA30) Index was analyzed to show that models based on the Fractal Market Hypothesis (FMH) are preferable to those based on the Efficient Market Hypothesis (EMH). In a first step, Rescaled Range Analysis was applied to search for long term dependence between index returns. The Hurst coefficient was computed as a measure of persistence in the trend of the observed time series. A Monte Carlo simulation based on both Geometric Brownian Motion (GBM) and Fractional Brownian Motion (FBM) models was used in the second step to investigate the forecasting ability of each model in a situation where information about future prices is lacking. In the third step, the volatility of the index returns obtained from the simulated GBM and FBM was considered together with that produced by a GARCH(1,1) model in order to determine the approach that minimizes the Value at Risk (VaR) and the Conditional Value at Risk (CVaR) of one asset portfolio where the DJIA30 index underlies an Exchange Traded Commodity (ETC). In the case observed returns could either follow a gaussian distribution or a Pareto distribution with a scale parameter equal to the inverse of the Hurst coefficient determined in the first step

A survey on macroeconomic data and trends in the Eurozone and a control dashboard model based on the KAM and Nekhoroshev theorems and the Hénon attractor

Starting from the examination of the main macroeconomic parameters that have characterized the structure of the Eurozone in the last decade – and their systemization – our aim was to apply a model suitable for describing its dynamics. In particular, the Kolmogorov-Arnold-Moser theorem was adapted to the question, up to low level perturbations caused by negative economic conditions, the first symptoms of financial or exogenous crises, and other turbulence affecting the economy. We then applied Nekhoroshev's theorem to represent the phenomena characterized by the occurrence of stronger resonance as well as the reactions of the system to the control and recovery measures implemented by the ECB Governing Council. The goal of the paper is to propose the adoption of a systemic stability planning and control dashboard – also suitable for the support and stimulation of growth cycles – with attention to optimal performance, which can be identified in compliance with (or restoration of) the macroeconomic trajectories determined in the model by the Hénon Attractor. The proposed scheme may find useful application – both for evaluation and operational purposes – in the current period, characterized by the complex and compromised scenario brought about by the SARS-COVID2 pandemic emergency, which has obviously imposed structured measures to support the economy

What Are the Impacts of Credit Crunch on the Bank-Enterprise System? An Analysis Through Dynamic Modeling and an Italian Dataset

There is an intrinsic and mutualistic dependence between the bio-economic performance of banks and that of enterprises. This supposition is supported by correlations identified in a comprehensive analysis of the Italian banking sector, which reveal particularly strong relations between financial intermediaries and smaller enterprises. Concentrating on developments within the bank-enterprise system (and by extension, in households), we discuss the positive effects, including on macroeconomics, generated when the banking sector supplies funding to productive infrastructure to understand how the industry remains healthy and efficient. The negative effects produced by the disappearance of such a cycle are also considered. This paper thus presents a mathematical argument through dynamic modelling to evaluate the structural trends in bank and company populations that result from more and less expansive credit strategies assumed by banks. Empirical observations of this data also reflect the critical stress factor of the (micro)enterprise population that allows it to generate positive economic variations as financial leverage decreases. The ensuing assessment of stable and unstable points of equilibrium as well as bifurcations and their irreversibility (hysteresis) reveals that banks have stagnating profits and increasing numbers of non-performing loans. Finally, we investigate the possibility of an optimal minimum level of credit leverage and how to improve the stabilizing measures that are conferred to the system itself, especially given the uncertainty caused by the COVID-19 pandemic

A Contribution on Relationship Banking. Economic, Anthropological and Mathematical Reasoning, Empirical Evidence from Italy

This research concerns the tightness of the economy and demonstrates the need for procedural reforms between banks and companies for more relational and infra-cooperative structures. Among these corrections, we suggest that banks and companies be considered as unicum bank-enterprises and monetary-financial and productive activity as two faces of the same coin, rather than distinct functions of separate entities. With the rapid and increasingly “liquid” evolution—to put it in the Bauman (2000) context—of financial intermediation in large groups and fintech, it is with a certain audacity that we propose more “solid” action. Following an anthropological and economic-behavioral survey on the inherent human qualities of cooperation and relationality, we situate these two qualities in economic actions and particularly in the relationship between financing institutions and producers. This heterodox notion is supported by an analysis of Italian performance data on financing trends, bank non-performing loans and the number of companies in the production sector, which reflects the progressive deterioration of the economy. From there, we apply a mathematical model to finalize our hypothetical reform. We finally recommend a strategy for the gradual implementation of our conclusions, based on an examination of existing cooperative banking intermediation practices

Chaos, granularity, and instability in economic systems of countries with emerging market economies: relationships between GDP growth rate and increasing internal inequality

Starting from empirical observations of macroeconomic data from emerging market economies recorded in the second decade of the 2000s, an economic analysis was conducted on these economies’ prerogatives and prospects, with special attention given to possible risks of systemic instability and the general soundness of their social and socio-economic structures. These assessments seem particularly relevant, not only for the countries in question, but because of their growing influence in determining international economic balance in the network of relations with developed countries at large. Indeed, alongside good performance trends in production growth, distribution of new wealth that has exacerbated inequalities can be discerned. Moreover, emerging countries’ economic policies often show a general accommodation to the sole objective of production growth, whilst neglecting to maintain equilibrium within the combined arrangement of all (other) macroeconomic variables. Hence, at first we investigated the constitutive dynamics of these phenomena, using an income diffusion model based on a Pareto probability distribution, then on rheology for the analysis of the peculiar new wealth flows distributed over these countries’ populations as well as any spontaneous redistribution effects induced by transactions among resident agents. At that point, applying the Dynamic New Keynesian model, we represented the system and studied solutions. Finally, we offer a proposal for constant government monitoring of each system, adopting control procedures capable of intervening – by way of economic and monetary policy instruments – where trends showed certain critical levels of instability in the economic system, which are observable from the trajectory diagrams