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

Sheri Markose
Authors registered in the RePEc Author Service: Oluwasegun Bewaji

Journal of Banking Regulation, 2013, vol. 14, issue 3-4, 285-305

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.

Date: 2013
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Citations: View citations in EconPapers (12)

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