A Novel Complex Network based Credit Risk Management Strategy

DOI

10.2991/isaeece-16.2016.26How to use a DOI?

Keywords

financial risk management; complex network; directed k-shell decomposition method

Abstract

Financialsystem exhibits a high degree of interdependence. Different typesof interconnections exist among financial agents, such as loanguarantees and cross share-holding. Financial contagion coulddiffuse along the interconnections and lead to wide spreadof risk. Thus how to effectively maintain the stability of financialsystem and prevent financial contagions from propagating isa crucial problem in financial risk management. In this paper,we present a novel risk management strategy based on complexnetwork theory with regard to the guarantee bank loans inChina. First, we transform the records of guarantee loans intodirected guarantee networks, with nodes representing companiesand edges representing the guarantee relations. With regard to theguarantee networks, we define two types of risk measurementsfor each company. The first one is the risk spreading abilityof each company when it defaults. The second is the exposurerisk each company is faced with. These two measurementstogether decide the credit risk of companies. Second,to evaluate these two types of measurements, a novel directedk-shell decomposition method is presented. It is an effectiveway to measure the node centrality in terms of both in-degreesand out-degrees. The spreading abilities of companiescan be obtained when the out-degrees of the companies areconsidered in the novel directed k-shell decomposition method,while the exposure risk of companies can be obtained when thein-degrees are considered. Experimental analysis shows that thedirected k-shell decomposition method could identify meaningfulcompanies in guarantee networks. Companies with high exposurerisk are more likely to be infected and thus default. Meanwhilecompanies with great spreading abilities could lead to wide spreadof financial risk. Thus with our strategy, the financial regulatorsare able to monitor and immunize the targeted companies tomaintain the stability of financial system.

Copyright

© 2016, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Xiangfeng Meng
AU  - Yunhai Tong
AU  - Xinhai Liu
AU  - Shaohua Tan
PY  - 2016/04
DA  - 2016/04
TI  - A Novel Complex Network based Credit Risk Management Strategy
BT  - Proceedings of the 2016 International Symposium on Advances in Electrical, Electronics and Computer Engineering
PB  - Atlantis Press
SP  - 120
EP  - 127
SN  - 2352-5401
UR  - https://doi.org/10.2991/isaeece-16.2016.26
DO  - 10.2991/isaeece-16.2016.26
ID  - Meng2016/04
ER  -