Systemic stress test model for shared portfolio networks

Irena Vodenska*, Nima Dehmamy, Alexander P. Becker, Sergey V. Buldyrev, Shlomo Havlin

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

We propose a dynamic model for systemic risk using a bipartite network of banks and assets in which the weight of links and node attributes vary over time. Using market data and bank asset holdings, we are able to estimate a single parameter as an indicator of the stability of the financial system. We apply the model to the European sovereign debt crisis and observe that the results closely match real-world events (e.g., the high risk of Greek sovereign bonds and the distress of Greek banks). Our model could become complementary to existing stress tests, incorporating the contribution of interconnectivity of the banks to systemic risk in time-dependent networks. Additionally, we propose an institutional systemic importance ranking, BankRank, for the financial institutions analyzed in this study to assess the contribution of individual banks to the overall systemic risk.

Original languageEnglish (US)
Article number3358
JournalScientific reports
Volume11
Issue number1
DOIs
StatePublished - Dec 2021
Externally publishedYes

ASJC Scopus subject areas

  • General

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