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Contagion in Financial Networks: A Threat Index

Abstract : This paper proposes to measure the spillover effects that cross liabilities generate on the magnitude of default in a system of financially linked institutions. Based on a simple model and an explicit criterion—the aggregate debt repayments—the measure is defined for each institution, affected by its characteristics and links to others. These measures—one for each institution—summarize relevant information on the interaction between the liabilities structure and the shocks to resources, and they can be useful to determine optimal intervention policies. The approach is illustrated to evaluate the consolidated foreign claims of 10 European Union countries.
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Submitted on : Tuesday, November 7, 2017 - 7:00:54 PM
Last modification on : Tuesday, September 22, 2020 - 3:55:12 AM

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Gabrielle Demange. Contagion in Financial Networks: A Threat Index. Management Science, INFORMS, 2018, 64 (2), ⟨10.1287/mnsc.2016.2592⟩. ⟨halshs-01630616⟩



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