Network Theory and Financial Risk (2nd edition)
First published:
ISBN: 978-1-78272-432-2
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Financial markets
Financial markets
Preface
Acknowledgements
An introduction to financial networks
Creating and describing networks
Identifying important nodes: Centrality metrics
Uncovering latent structure: Clustering and community detection
Finding hidden links: Projection networks
Estimating unknown links: Network reconstruction
Fast insights: Visualising networks
Financial cartography: Network layouts
Brass tacks: Complexity reduction
Financial stability and systemic risk
Design and simulation of financial market infrastructures
Monitoring and stress testing financial market infrastructures
Financial crime and conduct risk
Financial markets
References
The term “financial market” refers to a venue (electronic or physical) where trading of financial instruments takes place. Financial instruments are defined by the International Accounting Standards as “any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity”. Examples include stocks, bonds, commodities, repos, options, forwards, futures, swaps and foreign exchange. Financial markets can be divided based on the market structure into two broad categories: decentralised and centralised. Decentralised market structure is characteristic of over-the-counter (bilateral) markets, while in centralised markets all the transactions are cleared by a central clearing house (see Figure 14.1).
OTC MARKETS
Over-the-counter (OTC) markets are decentralised, meaning that market participants transact directly with one another. Since the defining characteristic of OTC markets is that transactions take place directly between two counterparties, OTC markets are also referred to as bilateral markets. Trading of currencies and bonds is mainly done over-the-counter. Also, bespoke derivatives contracts with non-standard terms
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