Big Data and Graph Theoretic Models: Simulating the Impact of Collateralization on a Financial System

8 Pages Posted: 1 Jun 2017  

Sharyn O'Halloran

Columbia University - School of International & Public Affairs

Nikolai Nowaczyk

Quaternion Risk Management

Donal A. Gallagher

Quaternion Risk Management

Date Written: May 29, 2017

Abstract

In this paper we represent a financial system using a weighted directed graph model. We simulate and analyze the impact of financial regulations regarding the collateralization of derivative trades on systemic risk, employing a novel open source risk engine. The analysis finds that introducing collateralization does reduce the costs of resolving a financial system in crisis. It does not, however, change the distribution of risk in the system. The implications of the analysis highlight the importance of scenario based testing using hands on metrics to quantify the notion of system risk.

Keywords: Big Data, Graph Theoretic Models, Stochastic Linear Gauss-Markov Model, Monte Carlo Simulation, Financial Risk Analytics, Collateralizations, Variation Margin, Initial Margin, Open Source Risk Engine

JEL Classification: G01, G18, G28, G32, G38, C12, C15

Suggested Citation

O'Halloran, Sharyn and Nowaczyk, Nikolai and Gallagher, Donal A., Big Data and Graph Theoretic Models: Simulating the Impact of Collateralization on a Financial System (May 29, 2017). Available at SSRN: https://ssrn.com/abstract=2977515 or http://dx.doi.org/10.2139/ssrn.2977515

Sharyn O'Halloran

Columbia University - School of International & Public Affairs ( email )

420 West 118th Street
New York, NY 10027
United States
(212) 854-3242 (Phone)
(212) 222-0598 (Fax)

Nikolai Nowaczyk (Contact Author)

Quaternion Risk Management ( email )

54 Fitzwilliam Square North
Dublin, D02X308
Ireland

Donal A. Gallagher

Quaternion Risk Management ( email )

54 Fitzwilliam Square
Dublin 2
Dublin
Ireland

HOME PAGE: http://www.quaternion.com

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