A model of financial contagion with variable asset returns may be replaced with a simple threshold model of cascades

DOI10.1016/J.ECONLET.2014.05.003zbMATH Open1295.91100arXiv1312.6804OpenAlexW2138176657MaRDI QIDQ741328FDOQ741328

Authors: Teruyoshi Kobayashi 

Publication date: 11 September 2014

Published in: Economics Letters (Search for Journal in Brave)

Abstract: I show the equivalence between a model of financial contagion and the threshold model of global cascades proposed by Watts (2002). The model financial network comprises banks that hold risky external assets as well as interbank assets. It is shown that a simple threshold model can replicate the size and the frequency of financial contagion without using information about individual balance sheets. Keywords: financial network, cascades, financial contagion, systemic risk.

Full work available at URL: https://arxiv.org/abs/1312.6804

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zbMATH Keywords

systemic riskfinancial contagioncascadesfinancial network

Mathematics Subject Classification ID

Stochastic network models in operations research (90B15) Actuarial science and mathematical finance (91G99)

Cites Work

• Network models and financial stability
• Contagion in financial networks
• A simple model of global cascades on random networks
• Systemic risk in a unifying framework for cascading processes on networks
• Network versus portfolio structure in financial systems

Cited In (2)

• A bootstrap percolation model in international trade networks
• A response function of Merton model and kinetic Ising model

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