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Contagion in financial networks

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Date

2010

Authors

Gai, Prasanna
Kapadia, Sujit

Journal Title

Journal ISSN

Volume Title

Publisher

Royal Society of London

Abstract

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 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.

Description

Keywords

Keywords: Contagion; Financial crisis; Liquidity risk; Network models; Systemic risk; Mathematical models; Finance Contagion; Financial crises; Liquidity risk; Network models; Systemic risk

Citation

URI

http://hdl.handle.net/1885/39363

Collections

ANU Research Publications

Source

Proceedings of the Royal Society of London Series A: Mathematical, Physical and Engineering Sciences

Type

Journal article

Book Title

Entity type

Access Statement

License Rights

DOI

10.1098/rspa.2009.0410

Restricted until

2037-12-31

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01_Gai_Contagion_in_financial_2010.pdf (661.73 KB)

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