Exchanging collateral has emerged as the market standard for mitigating counterparty credit risk in the interbank derivatives market. Collateral postings do not, however, eliminate that risk completely. Most notably, the so-called gap risk remains, which is the risk that in the event of...

We propose the dynamic network effect (DNE) model for the study of high-dimensional multivariate time series data. Cross-sectional dependencies between units are captured via one or multiple observed networks and a low-dimensional vector of latent stochastic network effects. The...