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Network reconstruction with UK CDS trade repository data

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  • William Abel
  • Laura Silvestri

Abstract

Despite post-crisis reforms in over-the-counter derivatives markets, regulators are left with incomplete, but still improved, data-sets. This means that methods for reconstructing networks of bilateral exposures from incomplete data are still necessary to conduct a proper assessment of systemic risk. In this paper, we propose a modification of the network reconstruction method developed by Cont and Moussa that includes additional information which is now available to regulators through post-crisis reforms. By making use of a data-set containing all transactions on UK single name CDS contracts, we assess the suitability of the proposed methodology by examining the characteristics of reconstructed and real networks. We find that the proposed methodology allows us to reconstruct networks that both comply with the newly available information, and are as heterogeneous and sparse with fat tailed in- and out- degree distributions as the real ones.

Suggested Citation

  • William Abel & Laura Silvestri, 2017. "Network reconstruction with UK CDS trade repository data," Quantitative Finance, Taylor & Francis Journals, vol. 17(12), pages 1923-1932, December.
    • Handle: RePEc:taf:quantf:v:17:y:2017:i:12:p:1923-1932
    DOI: 10.1080/14697688.2017.1357975
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    References listed on IDEAS

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    1. Edson Bastos Santos & Rama Cont, 2010. "The Brazilian Interbank Network Structure and Systemic Risk," Working Papers Series 219, Central Bank of Brazil, Research Department.
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    Cited by:

    1. Brunetti, Celso & Harris, Jeffrey H. & Mankad, Shawn, 2023. "Networks, interconnectedness, and interbank information asymmetry," Journal of Financial Stability, Elsevier, vol. 67(C).
    2. Celso Brunetti & Jeffrey H. Harris & Shawn Mankad, 2021. "Liquidity Networks, Interconnectedness, and Interbank Information Asymmetry," Finance and Economics Discussion Series 2021-017, Board of Governors of the Federal Reserve System (U.S.).
    3. Wang, Hu & Li, Shouwei, 2020. "Risk contagion in multilayer network of financial markets," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 541(C).
    4. Mallaburn, David & Roberts-Sklar, Matt & Silvestri, Laura, 2019. "Resilience of trading networks: evidence from the sterling corporate bond market," Bank of England working papers 813, Bank of England.

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