Interaction uncertainty in financial networks

Andrea Auconi

Chaos, Solitons & Fractals, 2024, vol. 188, issue C

Abstract: A minimal stochastic dynamical model of the interbank network is introduced, with linear interactions mediated by an integral of recent variations. Defining stress as the variance over the banks’ states, the interaction correction to the stress expectation is derived and studied on the short-medium timescale in an expansion. It is shown that, while different interaction matrices can amplify or absorb fluctuations, on average interactions increase the stress expectation. More in general, this analytical framework enables to estimate the impact of the uncertainty about financial exposures, and to draw conclusions about the importance of disclosure.

Keywords: Financial networks; Stochastic processes; Stress propagation (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:188:y:2024:i:c:s0960077924010208

DOI: 10.1016/j.chaos.2024.115468

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