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Financial Networks in the Presence of a Dominant Agent

In: Market Tremors

Author

Listed:
  • Hari P. Krishnan

    (SCT Capital)

  • Ash Bennington

    (Real Vision TV)

Abstract

This chapter explores the foundational principles necessary to understand our core thesis. The chapter builds a risk framework for dealing with large agents or “whales” in the market. Most of the time, these agents are invisible or even a stabilizing force. However, if these whales are forced to hedge, unwind or change their lending patterns, they can distort the distribution of returns. In the extreme case, their actions can trigger a left-tail event. Standard risk models generally fail to consider vital positioning riskpositioning risk. Drawing analogies from Mean Field Games, we develop a technique for adjusting widely used measures such as volatility and Value at Risk, given the presence of a Dominant Agent.

Suggested Citation

  • Hari P. Krishnan & Ash Bennington, 2021. "Financial Networks in the Presence of a Dominant Agent," Springer Books, in: Market Tremors, chapter 0, pages 25-59, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-79253-4_2
    DOI: 10.1007/978-3-030-79253-4_2
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