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Connected Guides
  • Credit risk: default probabilities and credit spreads
  • Value at Risk and expected shortfall
  • Systemic risk and contagion

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Systemic Risk: Historical Episodes

Replay four real crises on a stylised network, step through the dated events, and switch a rescue off to see what the model says would have happened.

Episode

Timeline

Model network

Market-wide event: no single institution is singled out.

Labels: D dealer bank, B bank, R regional bank, M money market fund, H hedge fund, I insurer, C clearing house.

Day 60
Day 0Day 60

Stock markets fall sharply

10 Oct 2008

Stock markets fall sharply in the week to 10 October while funding pressure continues.

What the model shows: the failure of a troubled investment bank drags down the money market fund that lent to it, a capital injection keeps a large insurer standing, and bank capital stops weaker regional banks from following.

Stylised model: archetype institutions, illustrative numbers. Dates are real; the model days are its own clock and not a calendar. No figures are attached to real firms.

What if?

Turn a rescue off and the model replays the episode without it.

As happened (model) against the what-if
As happened (model)

All rescues on: this is the model's version of what happened.

Predict first

In the model, how many institutions fail without the AIG loan?