Systemic risk measured by the resiliency of the system to initial shocks

Scientific paper - Original scientific paper

• Author: Luka Klinčić
• Author: Vinko Zlatić
• Author: Guido Caldarelli
• Author: Hrvoje Štefančić
• Author's institution: University of Zagreb; Faculty of Science; (Department of Physics)
• Scientific / art field, discipline and subdiscipline: NATURAL SCIENCES; Physics

Abstract (english)

The analysis of systemic risk often revolves around examining various measures utilized by practitioners and policymakers. These measures typically focus on assessing the extent to which external events can impact a financial system, without delving into the nature of the initial shock. In contrast, our approach takes a symmetrical standpoint and introduces a set of measures centered on the quantity of external shock that the system can absorb before experiencing deterioration. To achieve this, we employ a linearized version of DebtRank, which facilitates a clear depiction of the onset of financial distress, thereby enabling accurate estimation of systemic risk. Through the utilization of spectral graph theory, we explicitly compute localized and uniform exogenous shocks, elucidating their behavior. Additionally, we expand the analysis to encompass heterogeneous shocks, necessitating computation via Monte Carlo simulations. We firmly believe that our approach is both comprehensive and intuitive, enabling a standardized assessment of failure risk in financial systems.

• Keywords (english): financial networks; cascades
• Language: english
• Publication type: Scientific paper - Original scientific paper
• Publication status: Published
• Peer review: Peer review - international
• Publication version: Published version
• Journal title: Physical Review E
• Numbering: vol. 108, no. 4, 044303
• p-ISSN: 2470-0045
• e-ISSN: 2470-0053
• DOI: https://doi.org/10.1103/PhysRevE.108.044303
• URN:NBN: urn:nbn:hr:217:146071
• Publication: 2023-10
• Project: Number: KK.01.1.1.01.0004; Title (croatian): Provedba vrhunskih istraživanja u sklopu Znanstvenog centra izvrsnosti za kvantne i kompleksne sustave te reprezentacije Liejevih algebri; Title (english): Implementation of top research within the Scientific Center of Excellence for Quantum and Complex Systems, and Representations of Lie Algebras; Acronym: QuantiXLie; Leader: Hrvoje Buljan; Jurisdiction: eu; Funding stream: European Regional Development Fund
• Project: Number: KK.01.1.1.01.009; Title (croatian): Napredne metode i tehnologije u znanosti o podatcima i kooperativnim sustavima; Title (english): Advanced methods and technologies in Data Science and Cooperative Systems; Acronym: DATACROSS; Leader: Sven Lončarić; Jurisdiction: eu; Funding stream: Cohesion Fund
• Document URL: https://link.aps.org/doi/10.1103/PhysRevE.108.044303
• Type of resource: Text
• Access conditions: Open access
• Public note: © 2023 American Physical Society. Received 14 April 2023. Accepted 13 September 2023. Published 5 October 2023.
• Created on: 2024-07-23 10:54:14