Adjustable network reconstruction with applications to CDS exposures

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Title: Adjustable network reconstruction with applications to CDS exposures
Authors: Veraart, LAM
Gandy, A
Item Type: Journal Article
Abstract: This paper is concerned with reconstructing weighted directed networks from the total in- and out-weight of each node. This problem arises for example in the analysis of systemic risk of partially observed financial networks. Typically a wide range of networks is consistent with this partial information. We develop an empirical Bayesian methodology that can be adjusted such that the resulting networks are consistent with the observations and satisfy certain desired global topological properties such as a given mean density, extending the approach by Gandy and Veraart (2017). Furthermore we propose a new fitness-based model within this framework. We provide a case study based on a data set consisting of 89 fully observed financial networks of credit default swap exposures. We reconstruct those networks based on only partial information using the newly proposed as well as existing methods. To assess the quality of the reconstruction, we use a wide range of criteria, including measures on how well the degree distribution can be captured and higher order measures of systemic risk. We find that the empirical Bayesian approach performs best.
Issue Date: 28-Aug-2018
Date of Acceptance: 21-Aug-2018
URI: http://hdl.handle.net/10044/1/63788
DOI: https://dx.doi.org/10.1016/j.jmva.2018.08.011
ISSN: 0047-259X
Publisher: Elsevier
Journal / Book Title: Journal of Multivariate Analysis
Copyright Statement: © 2018 Elsevier Ltd. All rights reserved. This manuscript is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International Licence http://creativecommons.org/licenses/by-nc-nd/4.0/
Keywords: 0104 Statistics
Statistics & Probability
Publication Status: Published online
Embargo Date: 2019-08-28
Online Publication Date: 2018-08-28
Appears in Collections:Mathematics
Statistics
Faculty of Natural Sciences



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