eprintid: 2799
rev_number: 9
eprint_status: archive
userid: 69
dir: disk0/00/00/27/99
datestamp: 2015-11-02 14:00:36
lastmod: 2015-11-02 14:01:57
status_changed: 2015-11-02 14:00:36
type: article
metadata_visibility: show
creators_name: Bardoscia, Marco
creators_name: Battiston, Stefano
creators_name: Caccioli, Fabio
creators_name: Caldarelli, Guido
creators_id: 
creators_id: 
creators_id: 
creators_id: guido.caldarelli@imtlucca.it
title: DebtRank: A Microscopic Foundation for Shock Propagation
ispublished: pub
subjects: H1
subjects: HA
divisions: EIC
full_text_status: public
note: Correction: http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0134888
abstract: The DebtRank algorithm has been increasingly investigated as a method to estimate the impact of shocks in financial networks, as it overcomes the limitations of the traditional default-cascade approaches. Here we formulate a dynamical “microscopic” 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, we generalise the DebtRank formulation, 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 the interbank leverage matrix the dynamics is either stable, in which case the asymptotic state can be computed analytically, or unstable, meaning that at least one bank will default. We apply this framework to a dataset of the top listed European banks in the period 2008–2013. We find that network effects can generate an amplification of exogenous shocks of a factor ranging between three (in normal periods) and six (during the crisis) when we stress the system with a 0.5 shock on external (i.e. non-interbank) assets for all banks.
date: 2015
date_type: published
publication: PloS One
volume: 10
number: 6
publisher: Public Library of Science
pagerange: e0130406
id_number: 10.1371%2Fjournal.pone.0130406
refereed: TRUE
issn: 1932-6203
official_url: http://dx.doi.org/10.1371%2Fjournal.pone.0130406
citation:   Bardoscia, Marco and Battiston, Stefano and Caccioli, Fabio and Caldarelli, Guido  DebtRank: A Microscopic Foundation for Shock Propagation.  PloS One, 10 (6).  e0130406.  ISSN 1932-6203      (2015)  
document_url: http://eprints.imtlucca.it/2799/1/debt.pdf