30 research outputs found
The Social Climbing Game
The structure of a society depends, to some extent, on the incentives of the
individuals they are composed of. We study a stylized model of this interplay,
that suggests that the more individuals aim at climbing the social hierarchy,
the more society's hierarchy gets strong. Such a dependence is sharp, in the
sense that a persistent hierarchical order emerges abruptly when the preference
for social status gets larger than a threshold. This phase transition has its
origin in the fact that the presence of a well defined hierarchy allows agents
to climb it, thus reinforcing it, whereas in a "disordered" society it is
harder for agents to find out whom they should connect to in order to become
more central. Interestingly, a social order emerges when agents strive harder
to climb society and it results in a state of reduced social mobility, as a
consequence of ergodicity breaking, where climbing is more difficult.Comment: 14 pages, 9 figure
Complex financial networks and systemic risk: a review
In this paper we review recent advances in financial economics in relation to the measurement of systemic risk. We start by reviewing studies that apply traditional measures of risk to financial institutions. However, the main focus of the review is on studies that use network analysis paying special attention to those that apply complex analysis techniques. Applications of these techniques for the analysis and pricing of systemic risk has already provided significant benefits at least at the conceptual level but it also looks very promising from a practical point of view
Early warning of systemic risk in global banking: eigen-pair R number for financial contagion and market price-based methods
We analyse systemic risk in the core global banking system using a new network-based spectral eigen-pair method, which treats network failure as a dynamical system stability problem. This is compared with market price-based Systemic Risk Indexes, viz. Marginal Expected Shortfall, Delta Conditional Value-at-Risk, and Conditional Capital Shortfall Measure of Systemic Risk in a cross-border setting. Unlike paradoxical market price based risk measures, which underestimate risk during periods of asset price booms, the eigen-pair method based on bilateral balance sheet data gives early-warning of instability in terms of the tipping point that is analogous to the R number in epidemic models. For this regulatory capital thresholds are used. Furthermore, network centrality measures identify systemically important and vulnerable banking systems. Market price-based SRIs are contemporaneous with the crisis and they are found to covary with risk measures like VaR and betas
Cyclical patterns in risk indicators based on financial market infrastructure transaction data
Contagion risk in the interbank market: a probabilistic approach to cope with incomplete structural information
Default cascades in complex networks: Topology and systemic risk
The recent crisis has brought to the fore a crucial question that remains still open: what would be the optimal architecture of financial systems? We investigate the stability of several benchmark topologies in a simple default cascading dynamics in bank networks. We analyze the interplay of several crucial drivers, i.e. network topology, banks' capital ratios, market illiquidity, and random vs targeted shocks. We find that, in general, topology matters only – but substantially – when the market is illiquid. No single topology is always superior to others. In particular, scale-free networks can be both more robust and more fragile than homogeneous architectures. This finding has important policy implications. We also apply our methodology to a comprehensive dataset of an interbank market from 1999 to 2011.SCOPUS: ar.jinfo:eu-repo/semantics/publishe