Systemic risk through contagion in a core-periphery structured banking network
Risk Management
2014-06-26 v1
Abstract
We contribute to the understanding of how systemic risk arises in a network of credit-interlinked agents. Motivated by empirical studies we formulate a network model which, despite its simplicity, depicts the nature of interbank markets better than a homogeneous model. The components of a vector Ornstein-Uhlenbeck process living on the vertices of the network describe the financial robustnesses of the agents. For this system, we prove a LLN for growing network size leading to a propagation of chaos result. We state properties, which arise from such a structure, and examine the effect of inhomogeneity on several risk management issues and the possibility of contagion.
Cite
@article{arxiv.1406.6575,
title = {Systemic risk through contagion in a core-periphery structured banking network},
author = {Oliver Kley and Claudia Klüppelberg and Lukas Reichel},
journal= {arXiv preprint arXiv:1406.6575},
year = {2014}
}