A block-structured model for banking networks across multiple countries

Janina Engel, Matthias Scherer and Andrea Pagano

Journal of Network Theory in Finance

Abstract: A block-structured model for the reconstruction of directed and weighted financial networks spanning multiple countries is developed. In a first step, link probability matrixes are derived via a fitness model that is calibrated to reproduce a desired density and reciprocity for each block (ie, country and cross-border submatrix). The resulting probability matrix allows for fast simulation through bivariate Bernoulli trials. In a second step, weights are allocated to a sampled adjacency matrix via an exponential random graph model (ERGM) that fulfills the desired row, column and block weights. This model is analytically tractable, calibrated only on scarce publicly available data and closely reconstructs known network characteristics of financial markets. In addition, an algorithm for the parameter estimation of the ERGM is presented. Further, calibrating our model to the European Union interbank market, we are able to assess the systemic risk within the European banking network by applying various contagion models.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-network-theory-in- ... s-multiple-countries (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ8:7880561

Access Statistics for this article

More articles in Journal of Network Theory in Finance from Journal of Network Theory in Finance
Bibliographic data for series maintained by Thomas Paine ().