Evolution of Credit Risk Using a Personalized Pagerank Algorithm for Multilayer Networks
This work addresses credit risk assessment for financial institutions by providing a method to track risk propagation in complex networks, though it appears incremental as it extends existing PageRank techniques to multilayer contexts.
The authors tackled the problem of modeling credit risk evolution in multilayer networks by developing a personalized PageRank algorithm, which they tested on an agricultural lending dataset to show how default risk propagates and changes over time.
In this paper we present a novel algorithm to study the evolution of credit risk across complex multilayer networks. Pagerank-like algorithms allow for the propagation of an influence variable across single networks, and allow quantifying the risk single entities (nodes) are subject to given the connection they have to other nodes in the network. Multilayer networks, on the other hand, are networks where subset of nodes can be associated to a unique set (layer), and where edges connect elements either intra or inter networks. Our personalized PageRank algorithm for multilayer networks allows for quantifying how credit risk evolves across time and propagates through these networks. By using bipartite networks in each layer, we can quantify the risk of various components, not only the loans. We test our method in an agricultural lending dataset, and our results show how default risk is a challenging phenomenon that propagates and evolves through the network across time.