We propose a dynamic network model where two mechanisms control the probability of a link between two nodes: (i) the existence or absence of this link in the past, and (ii) node-specific latent variables (dynamic fitnesses) describing the propensity of each node to create links. Assuming a Markov dynamics for both mechanisms, we propose an Expectation-Maximization algorithm for model estimation and inference of the latent variables. The estimated parameters and fitnesses can be used to forecast the presence of a link in the future. We apply our methodology to the e-MID interbank network for which the two linkage mechanisms are associated with two different trading behaviors in the process of network formation, namely preferential trading and trading driven by node-specific characteristics. The empirical results allow to recognize preferential lending in the interbank market and indicate how a method that does not account for time-varying network topologies tends to overestimate preferential linkage.
A dynamic network model with persistent links and node-specific latent variables, with an application to the interbank market / Mazzarisi P.; Barucca P.; Lillo F.; Tantari D.. - In: EUROPEAN JOURNAL OF OPERATIONAL RESEARCH. - ISSN 0377-2217. - ELETTRONICO. - 281:(2020), pp. 50-65. [10.1016/j.ejor.2019.07.024]
A dynamic network model with persistent links and node-specific latent variables, with an application to the interbank market
Lillo F.;Tantari D.
2020
Abstract
We propose a dynamic network model where two mechanisms control the probability of a link between two nodes: (i) the existence or absence of this link in the past, and (ii) node-specific latent variables (dynamic fitnesses) describing the propensity of each node to create links. Assuming a Markov dynamics for both mechanisms, we propose an Expectation-Maximization algorithm for model estimation and inference of the latent variables. The estimated parameters and fitnesses can be used to forecast the presence of a link in the future. We apply our methodology to the e-MID interbank network for which the two linkage mechanisms are associated with two different trading behaviors in the process of network formation, namely preferential trading and trading driven by node-specific characteristics. The empirical results allow to recognize preferential lending in the interbank market and indicate how a method that does not account for time-varying network topologies tends to overestimate preferential linkage.I documenti in FLORE sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.