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Contagion in Financial Systems: A Bayesian Network Approach

Presented by: 
Carsten Chong
Friday 26th August 2016 - 12:10 to 12:30
INI Seminar Room 1
We conduct a probabilistic analysis for a structural default model of interconnected financial institutions. For all possible network structures we characterize the joint default distribution of the system using Bayesian network methodologies. Particular emphasis is given to the treatment and consequences of cyclic financial linkages. We further demonstrate how Bayesian network theory can be applied to detect contagion channels within the financial network, to measure the systemic importance of selected entities on others, and to compute conditional or unconditional probabilities of default for single or multiple institutions.
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University of Cambridge Research Councils UK
    Clay Mathematics Institute London Mathematical Society NM Rothschild and Sons