Contagion in Financial Systems: A Bayesian Network Approach

DOI10.1137/17M1116659zbMATH Open1408.91245arXiv1702.04287MaRDI QIDQ4635241FDOQ4635241

Claudia Klüppelberg, Carsten Chong

Publication date: 16 April 2018

Published in: SIAM Journal on Financial Mathematics (Search for Journal in Brave)

Abstract: 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.

Full work available at URL: https://arxiv.org/abs/1702.04287

zbMATH Keywords

Bayesian networksystemic riskfinancial contagionprobability of defaultmeasure of systemic riskmultivariate default riskstructural default risk model

Mathematics Subject Classification ID

Bayesian inference (62F15) Applications of graph theory (05C90) Stochastic network models in operations research (90B15) Actuarial science and mathematical finance (91G99)

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Cited In (10)

• Optimization of Fire Sales and Borrowing in Systemic Risk
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• Financial instability contagion: a dynamical systems approach
• Sensitivity of the Eisenberg--Noe Clearing Vector to Individual Interbank Liabilities
• A statistical procedure for testing financial contagion
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• Financial contagion in interbank networks: the case of Erdős-Rényi network model
• Brexit news propagation in financial systems: multidimensional visibility networks for market volatility dynamics

Uses Software

• BNT

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