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Systemic risk analytics: A data-driven multi-agent financial network (MAFN) approach

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Abstract

Systemic risk from financial intermediaries (FIs) refers to a negative externality problem, which is rife with fallacy of composition-type errors. To ‘see’ why seemingly rational behaviour at the level of an individual FI contributes to system-wide instability is a non-trivial exercise, which requires holistic visualization and modelling techniques. Paradox of volatility inherent to market price-based measures of systemic risk has made bilateral balance sheet and off balance data between FIs and network analysis essential for systemic risk management. There is both a data and a skills gap in implementing large-scale data-driven multi-agent financial network models that can operationalize macro-prudential policy. Different designs for a Pigou-type systemic risk surcharge are discussed with special reference to the Markose eigen-pair method, which simultaneously determines the degree of instability of the network of financial flows of obligors and also the rank order in the centrality of FIs contributing to it.

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  • Sheri M Markose, 2013. "Systemic risk analytics: A data-driven multi-agent financial network (MAFN) approach," Journal of Banking Regulation, Palgrave Macmillan, vol. 14(3-4), pages 285-305, July.
  • Handle: RePEc:pal:jbkreg:v:14:y:2013:i:3:p:285-305
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    Cited by:

    1. Heath, Alexandra & Kelly, Gerard & Manning, Mark & Markose, Sheri & Shaghaghi, Ali Rais, 2016. "CCPs and network stability in OTC derivatives markets," Journal of Financial Stability, Elsevier, vol. 27(C), pages 217-233.
    2. Green, Christopher & Bai, Ye & Murinde, Victor & Ngoka, Kethi & Maana, Isaya & Tiriongo, Samuel, 2016. "Overnight interbank markets and the determination of the interbank rate: A selective survey," International Review of Financial Analysis, Elsevier, vol. 44(C), pages 149-161.
    3. Flood, Mark D. & Lemieux, Victoria L. & Varga, Margaret & William Wong, B.L., 2016. "The application of visual analytics to financial stability monitoring," Journal of Financial Stability, Elsevier, vol. 27(C), pages 180-197.
    4. Antoaneta Sergueiva, 2013. "Systemic Risk Identification, Modelling, Analysis, and Monitoring: An Integrated Approach," Papers 1310.6486, arXiv.org.
    5. Fathin Faizah Said, 2017. "Global Banking on the Financial Network Modelling: Sectorial Analysis," Computational Economics, Springer;Society for Computational Economics, vol. 49(2), pages 227-253, February.

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