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Contagion in financial networks

Gai, Prasanna; Kapadia, Sujit

Description

This paper develops an analytical model of contagion in financial networks with arbitrary structure. We explore how the probability and potential impact of contagion is influenced by aggregate and idiosyncratic shocks, changes in network structure and asset market liquidity. Our findings suggest that financial systems exhibit a robust-yet-fragile tendency: while the probability of contagion may be low, the effects can be extremely widespread when problems occur. And we suggest why the...[Show more]

dc.contributor.authorGai, Prasanna
dc.contributor.authorKapadia, Sujit
dc.date.accessioned2015-12-10T21:56:18Z
dc.identifier.issn1364-5021
dc.identifier.urihttp://hdl.handle.net/1885/39363
dc.description.abstractThis paper develops an analytical model of contagion in financial networks with arbitrary structure. We explore how the probability and potential impact of contagion is influenced by aggregate and idiosyncratic shocks, changes in network structure and asset market liquidity. Our findings suggest that financial systems exhibit a robust-yet-fragile tendency: while the probability of contagion may be low, the effects can be extremely widespread when problems occur. And we suggest why the resilience of the system in withstanding fairly large shocks prior to 2007 should not have been taken as a reliable guide to its future robustness.
dc.publisherRoyal Society of London
dc.sourceProceedings of the Royal Society of London Series A: Mathematical, Physical and Engineering Sciences
dc.subjectKeywords: Contagion; Financial crisis; Liquidity risk; Network models; Systemic risk; Mathematical models; Finance Contagion; Financial crises; Liquidity risk; Network models; Systemic risk
dc.titleContagion in financial networks
dc.typeJournal article
local.description.notesImported from ARIES
local.identifier.citationvolume466
dc.date.issued2010
local.identifier.absfor140199 - Economic Theory not elsewhere classified
local.identifier.absfor140207 - Financial Economics
local.identifier.ariespublicationf2965xPUB176
local.type.statusPublished Version
local.contributor.affiliationGai, Prasanna, College of Asia and the Pacific, ANU
local.contributor.affiliationKapadia, Sujit, Bank of England
local.description.embargo2037-12-31
local.bibliographicCitation.startpage2401
local.bibliographicCitation.lastpage2423
local.identifier.doi10.1098/rspa.2009.0410
local.identifier.absseo919999 - Economic Framework not elsewhere classified
dc.date.updated2016-02-24T08:16:50Z
local.identifier.scopusID2-s2.0-77955964035
CollectionsANU Research Publications

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