Introduction

Current financial models based on graph theory are abstract and static snapshots of the existing relations between banks and other actors of an economic system. This patented model offers an alternative image, by representing the evolution of financial networks in a reactive and dynamic way, so that stress tests can be designed and conducted interactively and with elasticity.

Technical features

Compared to static financial models based on graphs, this patent offers a dynamic and reactive computer model that represents economic interactions between financial institutions such as interbank loans, derivatives and other assets. The dynamic execution of the model allows the analysis of the systemic risk within a financial network and of the contagion sparked by macroeconomic shock, by the default of credit institutions or by the use of derivative contracts. Such a model, implemented by a software program, can be personalized in order to represent specific scenarios, and designed to conduct stress tests by identifying and interacting with the chain of events that occur within the network. The speed with which an analysis can be conducted and the scalability to larger financial networks are guaranteed by the IT approach that underlies the patented model.

Possible Applications

• Financial network analysis;
• Prediction of the effects of macroeconomic shock;
• Analysis of the effects of derivatives;
• Analysis of reaction strategies to economic shock.

Advantages

• Dynamic model of macroeconomic relations;
• Based on concrete parameters and scenario evaluation;
• Scalable, interactive and dynamic stress tests.