Introduction to Systemic Risk and Financial Stability
Master-level course; Fall 2017 semester.
It is now widely recognized that networks play an important role in the understanding of systemic risk in finance. Indeed, the structure of the network of contracts among financial institutions matters a great deal for the determination of systemically important institutions and for estimating the effect of shocks to both institutions and asset classes.
Moreover, the network structure is important not only for financial stability but also for the collective moral hazard associated with too- big-to-fail and too-connected-to-fail banks.
Throughout this lecture, students will learn to master the main theoretical notions to understand network models of financial contagion. Importantly, during the practical exercises with provided software tools, the students will also acquire an operational know-how to analyze empirical financial networks from the perspective of systemic risk and how to carry out simple stress-tests on real financial networks. Learning outcomes include: understanding network models of financial contagion and acquiring know-how to carry out empirical analyses of financial networks as well as simple systemic risk stress-tests.
Time and place: Tuesdays, 16:00 - 18:00, room KOL-F-123, period: from 19.09.2017 to 19.12.2017.
Additional informations: The final grade will be the weighted average of the following
- 10% class active participation,
- 40% indvidually submitted homeworks,
- 35% final report,
- 15% presentation of the project.
- S. Battiston, G. Caldarelli, and M. D'Errico, “The financial system as a nexus of interconnected networks", in Interconnected Networks, pp. 195-229, Springer, 2016.
- S. Battiston, I. Mandel, Antoine Monasterolo, F. Schuetze, and G. Visentin, “A Climate stress-test of the EU financial system", Available at SSRN id=2726076, 2016.
- S. Battiston, G. Caldarelli, M. D'errico, and S. Gurciullo, “Leveraging the network : a stress-test framework based on DebtRank", Statistics and Risk Modeling, forthcoming, ssrn 2571218, pp. 1-33, 2016.
- S. Battiston, G. Caldarelli, R. May, T. Roukny, and J. E. Stiglitz, “The Price of Complexity in
- Financial Networks", SSRN 2594028, 2015.
- S. Battiston, M. D'Errico, and G. Visentin, “Leverage Networks: Rethinking Financial Contagion Across Models", 2016.
- S. Battiston, M. D’Errico, and G. Visentin, “Rethinking financial contagion," Preprint at
- http://ssrn. com/abstract, vol. 2831143, 2016.
- L. Eisenberg and T. H. Noe, “Systemic Risk in Financial Systems", Management Science, vol. 47, no. 2, pp. 236-249, 2001.
- H. Elsinger, A. Lehar, and M. Summer, “Risk Assessment for Banking Systems", Management Science, vol. 52, no. 9, pp. 1301-1314, 2006.
- P. Glasserman and H. P. Young, “How likely is contagion in financial networks?", Journal of Banking & Finance, vol. 50, pp. 383-399, 2015.
- L. C. G. Rogers and L. A. M. Veraart, “Failure and rescue in an interbank network", Management Science, vol. 59, no. 4, pp. 882-898, 2013.