?url_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Adc&rft.relation=http%3A%2F%2Feprints.imtlucca.it%2F2687%2F&rft.title=DebtRank%3A+A+microscopic+foundation+for+shock+propagation&rft.creator=Bardoscia%2C+Marco&rft.creator=Battiston%2C+Stefano+&rft.creator=Caccioli%2C+Fabio&rft.creator=Caldarelli%2C+Guido&rft.subject=HD61+Risk+Management&rft.description=The+DebtRank+algorithm+has+been+increasingly+investigated+as+a+method+to+estimate+the+impact+of+shocks+in+financial+networks%2C+as+it+overcomes+the+limitations+of+the+traditional+default-cascade+approaches.+Here+we+formulate+a+dynamical+%22microscopic%22+theory+of+instability+for+financial+networks+by+iterating+balance+sheet+identities+of+individual+banks+and+by+assuming+a+simple+rule+for+the+transfer+of+shocks+from+borrowers+to+lenders.+By+doing+so%2C+we+generalise+the+DebtRank+formulation%2C+both+providing+an+interpretation+of+the+effective+dynamics+in+terms+of+basic+accounting+principles+and+preventing+the+underestimation+of+losses+on+certain+network+topologies.+Depending+on+the+structure+of+leverages+the+dynamics+is+either+stable%2C+in+which+case+the+asymptotic+state+can+be+computed+analytically%2C+or+unstable%2C+meaning+that+at+least+a+bank+will+default.+We+apply+this+results+to+a+network+of+roughly+200+among+the+largest+European+banks+in+the+period+2008+-+2013.+We+show+that+network+effects+generate+an+amplification+of+exogenous+shocks+of+a+factor+ranging+between+three+(in+normal+periods)+and+six+(during+the+crisis)%2C+when+we+stress+the+system+with+a+0.5%25+shock+on+external+(i.e.+non-interbank)+assets+for+all+banks.&rft.publisher=ArXiv&rft.date=2015-04&rft.type=Working+Paper&rft.type=NonPeerReviewed&rft.identifier=++Bardoscia%2C+Marco+and+Battiston%2C+Stefano++and+Caccioli%2C+Fabio+and+Caldarelli%2C+Guido++DebtRank%3A+A+microscopic+foundation+for+shock+propagation.++Working+Paper+++ArXiv+++++++(Submitted)+++&rft.relation=http%3A%2F%2Farxiv.org%2Fabs%2F1504.01857