Assignment COMP0046 – Networks and systemic risk

Data
Please download the data in the folder “Assignment data” from moodle and unzip it. The data
set contains a matrix of interbank exposures. The entry (i,j) represents the amount lent by j to
i, a vector of external (non interbank) assets, and a vector of equities for a group of banks.



Tasks

1. You should present a statistical characterization of the system for what concern the
distributional properties of balance sheets and interbank claims. You should generate
the network corresponding to the pattern of interbank loans, characterize its
properties (e.g. degree distribution, clustering, assortativity), discuss how it is
different or similar to an Erdös-Rényi network, and how you do expect the network
properties to affect the propagation of distress within the system, when this is
measured with the Furfine algorithm.

2. You will then perform stress tests using the Furfine algorithm (you are also welcome
to use contagion algorithms other than the Furfine if you prefer), analyze and discuss
their results.

3. You will then consider that part of the external assets of each bank is invested in a
common asset (you can consider a more complex structure of overlapping portfolios
if you prefer), you will perform stress tests where shocks simultaneously propagate
because of counterparty risk and overlapping portfolios, and you will compare these
results with those of point 2.

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, 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?)

The reports will be marked by academic staff.
















































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