Mazzarisi, P;
Barucca, P;
Lillo, F;
Tantari, D;
(2020)
A dynamic network model with persistent links and node-specific latent variables, with an application to the interbank market.
European Journal of Operational Research
, 281
(1)
pp. 50-65.
10.1016/j.ejor.2019.07.024.
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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.
| Type: | Article |
|---|---|
| Title: | A dynamic network model with persistent links and node-specific latent variables, with an application to the interbank market |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1016/j.ejor.2019.07.024 |
| Publisher version: | https://doi.org/10.1016/j.ejor.2019.07.024 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | Temporal networks, Markov processes, Expectation-Maximization, Interbank market, Link prediction |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10081410 |
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