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Groups of enterprises can serve as guarantees for one another and form complex networks when obtaining loans from commercial banks. During economic slowdowns, corporate default may spread like a virus and lead to large-scale defaults or even systemic financial crises. To help financial regulatory authorities and banks manage the risk associated with networked loans, we identified the default contagion risk, a pivotal issue in developing preventive measures, and established iConVis, an interactive visual analysis tool that facilitates the closed-loop analysis process. A novel financial metric, the contagion effect, was formulated to quantify the infectious consequences of guarantee chains in this type of network. Based on this metric, we designed and implement a series of novel and coordinated views that address the analysis of financial problems. Experts evaluated the system using real-world financial data. The proposed approach grants practitioners the ability to avoid previous ad hoc analysis methodologies and extend coverage of the conventional Capital Accord to the banking industry.
We consider a general tractable model for default contagion and systemic risk in a heterogeneous financial network, subject to an exogenous macroeconomic shock. We show that, under some regularity assumptions, the default cascade model could be trans
We discuss the systemic risk implied by the interbank exposures reconstructed with the maximum entropy method. The maximum entropy method severely underestimates the risk of interbank contagion by assuming a fully connected network, while in reality
We propose a novel credit default model that takes into account the impact of macroeconomic information and contagion effect on the defaults of obligors. We use a set-valued Markov chain to model the default process, which is the set of all defaulted
This paper studies the optimal dividend for a multi-line insurance group, in which each subsidiary runs a product line and is exposed to some external credit risk. The default contagion is considered such that one default event may increase the defau
We introduce the general arbitrage-free valuation framework for counterparty risk adjustments in presence of bilateral default risk, including default of the investor. We illustrate the symmetry in the valuation and show that the adjustment involves