Handbook on Systemic Risk | by Jean-Pierre Fouque and Joseph A. Langsam (eds) | ISBN: 9781107023437 | Financial Industry Business Ontology. Controlling an Intra-Day Trading Process. Macroprudential Risk Analysis. Systemic Risk Early Warning System.

Handbook on Systemic Risk 9781107023437

by Jean-Pierre Fouque and Joseph A. Langsam (eds)
ISBN: 9781107023437

Written by experts in the field, this authoritative resource provides researchers with an introduction to the multifaceted aspects of systemic risks facing the global financial markets.

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Table of Contents
Handbook on Systemic Risk
Part I – Data—The Prerequisite for Managing Systemic Risk

Chapter 1 – Systemic Risk Information Requirements—Current Environment, Needs, and Approaches for Development
1.1: Introduction
1.2: Purpose
1.3: Overview of Types of Systemic Risk Information Required
1.4: Overview of the Financial Landscape
1.5: Observations on the State of Financial Data within Financial Institutions
1.6: The Challenge Ahead for Systemic Risk Information Collection
1.7: Paths for Collection of Systemic Risk Information
1.8: Conclusions

Chapter 2 – Aligning Models and Data for Systemic Risk Analysis
2.1: Introduction
2.2: Data Aggregation and Statistical Inference: At What Level of Detail Should Data Be Collected?
2.3: Data Linkage
2.4: Aligning Data and Models
2.5: A Brief Comment on Confidentiality, Anonymization and the Role of Consortia
2.6: Conclusion
Appendix: An Example of a Systemic Risk Dashboard with Annotations for the Data Required to Construct it

Chapter 3 – Applying FpML
3.1: Introduction
3.2: Inside FpML
3.3: Application to Systemic Risk
3.4: Conclusions

Chapter 4 – Data Integration for Systemic Risk in the Financial System
4.1: The Systemic Risk Data Integration Challenge
4.2: Data Integration Task Model
4.3: Standards for Data Exchange
4.4: Tools for Reconciling Heterogeneity
4.5: Research Questions
4.6: Conclusions

Chapter 5 – Semantics in Systemic Risk Management
5.1: Dealing with Semantics
5.2: Creating an Ontology
5.3: Semantic Technology Applications
5.4: Operational Data
5.5: Summary
5.6: The Financial Industry Business Ontology
5.7: FIBO and Systemic Risk
Part II – Statistics and Systemic Risk

Chapter 6 – Statistical Assessments of Systemic Risk Measures
6.1: Introduction and Background on Systemic Risk
6.2: CoVaR
6.3: Marginal Expected Shortfall
6.4: Other Tail Dependence Measures
6.5: Conclusions & Alternative Systemic Measure

Chapter 7 – Regime Switching Models and Risk Measurement Tools
7.1: Introduction
7.2: Using Regime Shifting Models with Historical Data
7.3: Using Forward-Looking Data
7.4: Conclusions
Part III – Measuring and Regulating Systemic Risk

Chapter 8 – Measuring Systemic Risk
8.1: The Dodd–Frank Wall Street Reform and Consumer Protection Act
8.2: Evaluation of the Dodd–Frank Act
8.3: NYU Stern Systemic Risk Rankings
Appendix A: Systemic Risk Institutions
Appendix B. Supervisory Capital Assessment Program (SCAP)
Appendix C: Marginal Expected Shortfall (MES) and Supervisory Stress Test (SCAP)

Chapter 9 – Taxing Systemic Risk
9.1: Systemic Risk and the Financial Crisis of 2007 to 2009
9.2: Regulating Systemic Risk
9.3: The Dodd–Frank Wall Street Reforms and Consumer Protection Act of 2010
9.4: A Tax on Systemic Risk
9.5: Summary

Chapter 10 – Analyzing Systemic Risk of the European Banking Sector
10.1: Introduction
10.2: Methodology – Measuring Systemic Risk
10.3: Data and Summary Statistics
10.4: Measuring Systemic Risk of European Banks
10.5: Responses to the Financial Crisis of 2007–2009
10.6: After the Crisis is before the Crisis – the Sovereign Debt Crisis of 2010
10.7: Conclusion
Appendix 1: List of banks and input parameters as of June 2007
Appendix 2: Capital Shortfall as of June 2007
Part IV – Networks

Chapter 11 – Network Models and Systemic Risk Assessment
11.1: Introduction
11.2: A Network Model of Interbank Exposures and Contagion Risk
11.3: Estimating Network Exposures
11.4: Creating Loss Scenarios
11.5: Clearing in the Interbank Market
11.6: Empirical Findings
11.7: Extensions

Chapter 12 – Strategic Interactions on Financial Networks for the Analysis of Systemic Risk
12.1: Financial Networks and Systemic Risk
12.2: Diffusion-Like Processes over Networks
12.3: An Empirical Application: The CME Market
12.4: Conclusions and Policy Implications

Chapter 13 – Network Structure and Systemic Risk in Banking Systems
13.1: Introduction
13.2: The Network Structure of Banking Systems
13.3: Systemic Risk and Default Contagion
13.4: Is Default Contagion a Significant Source of Systemic Risk?
13.5: What Makes an Institution Systemically Important?
13.6: Does One Size Fit All? the Case for Targeted Capital Requirements
Part V – Systemic Risk and Mathematical Finance

Chapter 14 – Firms, Banks and Households
14.1: Introduction
14.2: Modelling Assumptions
14.3: Summary
14.4: Examples
14.5: Numerical Results

Chapter 15 – An Agent-Based Computational Model for Bank Formation and Interbank Networks
15.1: Introduction
15.2: The Pre-Banking Society
15.3: Introducing Banks
15.4: Interbank Market
15.5: Communities of Correlated Preferences
15.6: Conclusions and Further Directions

Chapter 16 – Diversification in Financial Networks may Increase Systemic Risk
16.1: Introduction
16.2: A Bistable Mean-Field Model for Systemic Risk
16.3: Review of Some Models for Systemic Risk
16.4: Summary and Conclusion

Chapter 17 – Systemic Risk Illustrated
17.1: Introduction
17.2: Stability Illustrated by Simulations
17.3: Mean-Field Limit
17.4: Large Deviations and Systemic Risk
17.5: Conclusion

Chapter 18 – Financial Crisis and Contagion—A Dynamical Systems Approach
18.1: Introduction
18.2: Assumptions on an Economy
18.3: A Nonlinear Dynamic Programming Model
18.4: Market Instability Indicator
18.5: Financial Crisis
18.6: Case Studies and Applications
18.7: Conclusion and Further Reading
Part VI – Counterparty Risk and Systemic Risk

Chapter 19 – Pricing and Mitigation of Counterparty Credit Exposures
19.1: Introduction
19.2: Notation and Definitions
19.3: Risk-Neutral Pricing of Counterparty Risk
19.4: Application to Interest-Rate and Credit Default Swaps
19.5: Future Trends in Counterparty Risk
19.6: Conclusions

Chapter 20 – Counterparty Contagion in Context—Contributions to Systemic Risk
20.1: Introduction
20.2: Contagion
20.3: Models of Counterparty Contagion
20.4: Other Phenomena in Models of Systemic Risk
20.5: Counterparty Contagion and Systemic Risk
20.6: Systemic Risk Attribution
20.7: Avenues for Progress
Part VII – Algorithmic Trading

Chapter 21 – Market Microstructure Knowledge Needed for Controlling an Intra-Day Trading Process
21.1: Market Microstructure Modeling and Payoff Understanding are Key Elements of Quantitative Trading
21.2: From Market Design to Market Microstructure: Practical Examples
21.3: Forward and Backward Components of the Price Formation Process
21.4: From Statistically Optimal Trade Scheduling to Microscopic Optimization of Order Flows
21.5: Perspectives and Future Work

Chapter 22 – Dynamical Models of Market Impact and Algorithms for Order Execution
22.1: Introduction
22.2: Price Impact and Price Manipulation
22.3: Temporary and Permanent Price Impact
22.4: Transient Price Impact
22.5: Further Extensions
Part VIII – Behavioral Finance—The Psychological Dimension of Systemic Risk

Chapter 23 – Fear, Greed, and Financial Crises—A Cognitive Neurosciences Perspective
23.1: Introduction
23.2: A Brief History of the Brain
23.3: Fear
23.4: Greed
23.5: Risk
23.6: Rationality
23.7: Sentience
23.8: Interactions
23.9: Policy Implications
23.10: Conclusion

Chapter 24 – Bubbles, Crises, and Heterogeneous Beliefs
24.1: Historical Bubbles
24.2: Limits of Arbitrage
24.3: Heterogeneous Beliefs
24.4: Resale Option Theory of Bubbles
24.5: Credit Cycles
24.6: General Equilibrium Models with Heterogeneous Beliefs
24.7: Welfare Analysis with Distorted Beliefs
24.8: Summary and Future Directions

Chapter 25 – Systemic Risk and Sentiment
25.1: Introduction
25.2: Behavioral Asset Pricing Theory and Sentiment
25.3: Estimating the Empirical Sdf
25.4: Sentiment and the Financial Crisis
25.5: External Measures of Sentiment
25.6: Sentiment, Systemic Risk and Leverage
25.7: Conclusion
Part IX – Regulation

Chapter 26 – The New Financial Stability Framework in Europe
26.1: The New European Approach to Systemic Risk
26.2: The New European Systemic Risk Framework
26.3: The ECB Approach to Systemic Risk
26.4: Global Markets Require a Global Approach to Risk
26.5: Conclusion

Chapter 27 – Sector-Level Financial Networks and Macroprudential Risk Analysis in the Euro Area
27.1: Introduction
27.2: Description of the Data
27.3: The Network of Balance Sheet Exposures for the Aggregate Euro Area Financial System
27.4: Derivation of the Risk-Based Balance Sheets
27.5: Propagation of Shocks in the Risk-Based Financial Network
27.6: Concluding Remarks

Chapter 28 – Systemic Risk Early Warning System—A Micro-Macro Prudential Synthesis
28.1: Introduction
28.2: EWS Elements
28.3: Risk Model and Results
28.4: Discussion and Implications
28.5: Conclusions and Future Work
Appendix A: Description of explanatory data
Appendix B: Explanatory variable construction
Part X – Computational Issues and Requirements

Chapter 29 – Enabling Data Analysis for Addressing Systemic Risk
29.1: Challenges in Analyzing Systemic Risk
29.2: Approaches That Support Analysis
29.3: Analysis Approaches
29.4: Discussion and Future Research

Chapter 30 – Operational Considerations in an Analytic Environment for Systemic Risk
30.1: Introduction
30.2: Controlling the Frame of Reference
30.3: Managing the Data Environment
30.4: Model Hosting and Execution Environment
30.5: Comparison and Measurement across Disparate Models
30.6: Aggregation of Risk Components
30.7: From Analysis to Decisions

Chapter 31 – Requirements for Systemic Risk Management in the Financial Sector
31.1: Introduction
31.2: History
31.3: Modern Mortgage Market
31.4: Network and Counterparty Risk
31.5: Requirements for Broad Scope Risk
31.6: Integrated Risk Analytics
31.7: Reference Data
31.8: Risk Analytics Services
31.9: Summary
Part XI – Accounting Issues

Chapter 32 – Accounting’s Role in the Reporting, Creation, and Avoidance of Systemic Risk in Financial Institutions
32.1: Introduction
32.2: Some Basics of Accounting and Financial Reporting
32.3: Accounting for Systemic Risk
32.4: Accounting for Different Asset and Liability Classes
32.5: Accounting, Pro-Cyclicality and Systemic Risk: Summary Thoughts
32.6: Single Firm versus Systemic Risk
32.7: Concluding Remarks

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