Clearing algorithms and network centrality
Risk Management
2017-06-02 v1
Abstract
I show that the solution of a standard clearing model commonly used in contagion analyses for financial systems can be expressed as a specific form of a generalized Katz centrality measure under conditions that correspond to a system-wide shock. This result provides a formal explanation for earlier empirical results which showed that Katz-type centrality measures are closely related to contagiousness. It also allows assessing the assumptions that one is making when using such centrality measures as systemic risk indicators. I conclude that these assumptions should be considered too strong and that, from a theoretical perspective, clearing models should be given preference over centrality measures in systemic risk analyses.
Cite
@article{arxiv.1706.00284,
title = {Clearing algorithms and network centrality},
author = {Christoph Siebenbrunner},
journal= {arXiv preprint arXiv:1706.00284},
year = {2017}
}