The 2015 AMMCS-CAIMS Congress
Interdisciplinary AMMCS Conference SeriesWaterloo, Ontario, Canada | June 7-12, 2015
AMMCS-CAIMS 2015 Semi-Plenary Talk
Modelling the Collapse of Financial Systems
Tom Hurd (McMaster University)
The list of possible channels of systemic risk (SR) includes correlated asset shocks, default contagion, funding liquidity contagion and market illiquidity effects. A number of deliberately simplified modelling frameworks, beginning with the Eisenberg-Noe 2001 model, aim to reveal the pure contagion effects that can lead to cascading chains of defaulted and illiquid financial institutions. It turns out that analytic methods can be brought to bear to determine the characteristics of such cascades on large random financial networks (RFN) that have a property we call local tree-like independence (LTI). In this talk, we review the conceptual basis of these methods in percolation theory on random graphs, and investigate how to extend them to interesting models of complex financial networks.
Tom Hurd is Professor of Mathematics at McMaster University. He turned to the mathematical study of financial markets in the late 1990s, following his earlier research in mathematical physics. Since then he has written on a wide range of financial topics, with publications in portfolio theory, interest rate modelling, and credit risk. Over the past few years, his work has focussed on the mathematical modelling of systemic risk, that is, the stability of financial networks. His new book entitled "Contagion! The Spread of Systemic Risk in Financial Networks” is soon to be published. He has delivered a number of minicourses on this subject and, most recently, a one-semester PhD course at ETH Zurich. In addition to cofounding the M-Phimac Master program in Financial Mathematics at McMaster, which he continues to direct, he has supervised numerous undergraduate, M.Sc., Ph.D. and Postdoctoral researchers working in financial mathematics.