Inference for large financial systems

Kay Giesecke, Gustavo Schwenkler, Justin A. Sirignano

Research output: Contribution to journalArticlepeer-review


We treat the parameter estimation problem for mean-field models of large interacting financial systems such as the banking system and a pool of assets held by an institution or backing a security. We develop an asymptotic inference approach that addresses the scale and complexity of such systems. Harnessing the weak convergence results developed for mean-field financial systems in the literature, we construct an approximate likelihood for large systems. The approximate likelihood has a conditionally Gaussian structure, enabling us to design an efficient numerical method for its evaluation. We provide a representation of the corresponding approximate estimator in terms of a weighted least-squares estimator, and use it to analyze the large-system and large-sample behavior of the estimator. Numerical results for a mean-field model of systemic financial risk highlight the efficiency and accuracy of our estimator.

Original languageEnglish (US)
Pages (from-to)3-46
Number of pages44
JournalMathematical Finance
Issue number1
StatePublished - Jan 1 2020


  • computational efficiency
  • large interacting stochastic systems
  • likelihood inference
  • statistical efficiency

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Applied Mathematics


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