Assignment COMP0046 – Networks and systemic risk
Data
Please download the data in the folder “Coursework data”. The data set
contains information about balance sheets of 145 banks. A matrix of
interbank exposures is provided in file “interbankExposures.csv”. Entry
(i,j) of such matrix represents the exposure of i towards j. File
“bankAssetWeightedNetwork.csv” contains a matrix that specifies the
investment of each bank in 20 external assets, entry (i,j) represents the
amount invested by bank i in asset j. A vector of bank equities is also
provided in file “bankEquities.csv“.
Tasks
1. You should present a statistical characterization of the system for
what concern the distributional properties of balance sheets and
interbank exposures, and you should describe the topological
properties (e.g. degree distribution, clustering, assortativity) of the
interbank exposure network.
2. You will then perform stress tests using the Furfine algorithm
assuming shocks propagate only because of counterparty default
risk.
3. You will then perform additional stress tests where shocks
simultaneously propagate because of counterparty risk and
overlapping portfolios, and you will compare these results with
those of point 2. In relation to contagion due to overlapping
portfolios, the suggestion is to consider a linear devaluation
function for the assets, with P_i(t)= (1-a*q_i(t)), where P_i(t) is the
price of asset i at time t, we assume the initial price of each asset
equal to 1, and q_i(t) is the fraction of asset i owned by banks that
have defaulted up to time t, where such fraction is computed with
respect to the total amount owned by the 145 in the system.
Finally, “a” is a market impact parameter.
You are free to explore scenarios of your choice for what concern the
initial exogenous shock, and to make assumptions for what concern the
recovery rate and the liquidity of external assets (the parameter “a”), as
long as all assumptions and scenarios are clearly stated and justified in
your written report.
Written report
A brief written report (indicatively around 2500 words plus figures and
tables) containing the justification of the approach, the presentation of the
results, the discussion of the results and conclusions should be submitted
to moodle before the deadline.
Marking This assignment is worth 100% of the total exam mark. The
marking will be based on the following criteria:
1) Clarity of the report (is the report clear and well structured, are
figures informative, is the methodology explained well Are
modeling assumptions discussed )
2) Results (are results sound )
3) Critical discussion (are results correctly interpreted Is there a
discussion of limitations and further challenges )
