Systemic risk through contagion in a core-periphery structured banking network

DOI10.4064/BC104-0-7MaRDI QIDQ5245477zbMATH OpenOpenAlexFDO

Authors Oliver Kley, Claudia Klüppelberg, Lukas Reichel

Publication date 8 April 2015

Published in Banach Center Publications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1406.6575

zbMATH Keywords

banking networkOrnstein-Uhlenbeck processsystemic risk: contagion

Mathematics Subject Classification ID

Applications of stochastic analysis (to PDEs, etc.) (60H30) Interacting random processes; statistical mechanics type models; percolation theory (60K35)

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.

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Cited in

(28)

• Emergence of a core-periphery structure in a simple dynamic model of the interbank market
• Network entropy and systemic risk in dynamic banking systems
• Strong solutions of mean-field stochastic differential equations with irregular drift
• Systemic risk in banking networks: advantages of ``tiered banking systems
• The formation of a core-periphery structure in heterogeneous financial networks
• Partial mean field limits in heterogeneous networks
• Dynamic contagion in a banking system with births and defaults
• On fairness of systemic risk measures
• Impact of contingent payments on systemic risk in financial networks
• Systemic interbank network risks in Russia
• Risk assessment for banking systems
• A dynamic network model of interbank lending -- systemic risk and liquidity provisioning
• Control of interbank contagion under partial information
• Market procyclicality and systemic risk
• Systemic risk and dynamics of contagion: a duplex inter-bank network
• The construction and properties of assortative configuration graphs
• Contagion in financial systems: a Bayesian network approach
• TESTING FOR "PURE" CONTAGION EFFECTS IN INTERNATIONAL BANKING: THE CASE OF BCCI'S FAILURE
• Managing Default Contagion in Inhomogeneous Financial Networks
• Joint effects of the liability network and portfolio overlapping on systemic financial risk: contagion and rescue
• Systemic Risk in Networks with a Central Node
• Financial asset bubbles in banking networks
• Systemic risk in interbanking networks
• A unified approach to systemic risk measures via acceptance sets
• Propagation of chaos and large deviations in mean-field models with jumps on block-structured networks
• Stability, uniqueness and existence of solutions to McKean-Vlasov stochastic differential equations in arbitrary moments
• Stability, uniqueness and existence of solutions to McKean-Vlasov SDEs: a multidimensional Yamada-Watanabe approach
• Systemic risk in a network fragility model analyzed with probability density evolution of persistent random walks

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