Multiplex network analysis of the UK OTC derivatives market

Marco Bardoscia, Ginestra Bianconi () and Gerardo Ferrara
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Ginestra Bianconi: School of Mathematical Sciences, Queen Mary University of London

No 726, Bank of England working papers from Bank of England

Abstract: In this paper, we analyse the network of exposures constructed by using the UK trade repository data for three different categories of contracts: interest rate, credit, and foreign exchange derivatives. We study how liquidity shocks related to variation margins propagate across the network and translate into payment deficiencies across different derivative markets. A key finding of the paper is that, in extreme theoretical scenarios where liquidity buffers are small, a handful of institutions may experience significant spillover effects due to the directionality of their portfolios. Additionally, we show that two novel multiplex centrality measures, the Functional Multiplex Eigenvector Centrality and the Functional Multiplex PageRank, can be used as a proxy for the vulnerability of financial institutions, with the Functional Multiplex PageRank improving on the results that can be obtained using the Functional Multiplex Eigenvector Centrality.

Keywords: Liquidity shock; multiplex networks; systemic risk; financial networks; central counterparty (CCP) (search for similar items in EconPapers)
JEL-codes: D85 G01 G17 L14 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2018-05-18, Revised 2019-09-10
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-rmg
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Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0726

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