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Systemic Risk Identification, Modelling, Analysis, and Monitoring: An Integrated Approach

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  • Antoaneta Sergueiva
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    Abstract

    Research capacity is critical in understanding systemic risk and informing new regulation. Banking regulation has not kept pace with all the complexities of financial innovation. The academic literature on systemic risk is rapidly expanding. The majority of papers analyse a single source or a consolidated source of risk and its effect. A fraction of publications quantify systemic risk measures or formulate penalties for systemically important financial institutions that are of practical regulatory relevance. The challenges facing systemic risk evaluation and regulation still persist, as the definition of systemic risk is somewhat unsettled and that affects attempts to provide solutions. Our understanding of systemic risk is evolving and the awareness of data relevance is rising gradually; this challenge is reflected in the focus of major international research initiatives. There is a consensus that the direct and indirect costs of a systemic crisis are enormous as opposed to preventing it, and that without regulation the externalities will not be prevented; but there is no consensus yet on the extent and detail of regulation, and research expectations are to facilitate the regulatory process. This report outlines an integrated approach for systemic risk evaluation based on multiple types of interbank exposures through innovative modelling approaches as tensorial multilayer networks, suggests how to relate underlying economic data and how to extend the network to cover financial market information. We reason about data requirements and time scale effects, and outline a multi-model hypernetwork of systemic risk knowledge as a scenario analysis and policy support tool. The argument is that logical steps forward would incorporate the range of risk sources and their interrelated effects as contributions towards an overall systemic risk indicator, would perform an integral analysis of ...

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    File URL: http://arxiv.org/pdf/1310.6486
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    Paper provided by arXiv.org in its series Papers with number 1310.6486.

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    Date of creation: Oct 2013
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    Handle: RePEc:arx:papers:1310.6486

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    Web page: http://arxiv.org/

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    1. Zadeh, Lotfi A., 2006. "Generalized theory of uncertainty (GTU)--principal concepts and ideas," Computational Statistics & Data Analysis, Elsevier, Elsevier, vol. 51(1), pages 15-46, November.
    2. Semyon Malamud & Marzena Rostek, 2012. "Decentralized Exchange," Working Papers, NET Institute 12-18, NET Institute.
    3. Paolo Emilio Mistrulli, 2007. "Assessing financial contagion in the interbank market: Maximum entropy versus observed interbank lending patterns," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 641, Bank of Italy, Economic Research and International Relations Area.
    4. Markose, Sheri & Giansante, Simone & Shaghaghi, Ali Rais, 2012. "‘Too interconnected to fail’ financial network of US CDS market: Topological fragility and systemic risk," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 83(3), pages 627-646.
    5. Juan Solorzano-Margain & Serafin Martinez-Jaramillo & Fabrizio Lopez-Gallo, 2013. "Financial contagion: extending the exposures network of the Mexican financial system," Computational Management Science, Springer, Springer, vol. 10(2), pages 125-155, June.
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