Categorical network models for systemic risk measurement

Categorical network models for systemic risk measurement A very important area of financial risk management is systemic risk modelling, which concerns the estimation of the interrelationships between financial institutions, with the aim of establishing which of them are more central and, therefore, more contagious/subject to contagion. The aim of this paper is to develop a systemic risk model which, differently from existing ones, employs not only the information contained in financial market prices, but also big data coming from financial tweets. From a methodological viewpoint, we propose a new framework, based on categorical graphical models, that can estimate systemic risks with models based on two different sources: financial markets and financial tweets, and suggest a way to combine them, using a Bayesian approach. From an applied viewpoint, we present the first systemic risk model based on big data, and show that such a model can shed further light on the interrelationships between financial institutions. This can help predicting the level of returns of a bank, conditionally on the others, for example when a shock occurs in another bank. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Quality & Quantity Springer Journals

Categorical network models for systemic risk measurement

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Publisher
Springer Netherlands
Copyright
Copyright © 2016 by Springer Science+Business Media Dordrecht
Subject
Social Sciences; Methodology of the Social Sciences; Social Sciences, general
ISSN
0033-5177
eISSN
1573-7845
D.O.I.
10.1007/s11135-016-0354-x
Publisher site
See Article on Publisher Site

Abstract

A very important area of financial risk management is systemic risk modelling, which concerns the estimation of the interrelationships between financial institutions, with the aim of establishing which of them are more central and, therefore, more contagious/subject to contagion. The aim of this paper is to develop a systemic risk model which, differently from existing ones, employs not only the information contained in financial market prices, but also big data coming from financial tweets. From a methodological viewpoint, we propose a new framework, based on categorical graphical models, that can estimate systemic risks with models based on two different sources: financial markets and financial tweets, and suggest a way to combine them, using a Bayesian approach. From an applied viewpoint, we present the first systemic risk model based on big data, and show that such a model can shed further light on the interrelationships between financial institutions. This can help predicting the level of returns of a bank, conditionally on the others, for example when a shock occurs in another bank.

Journal

Quality & QuantitySpringer Journals

Published: May 17, 2016

References

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