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An Integrated Model of Systemic Risk in Financial Networks

Presented by: 
S Weber Leibniz Universität Hannover
Thursday 6th November 2014 - 10:00 to 11:00
INI Seminar Room 2
The talk presents a comprehensive model of a financial system that integrates network effects (cf. Eisenberg & Noe (2001)), bankruptcy costs (cf. Rogers & Veraart (2013)), cross- holdings (cf. Elsinger (2009)), and fire sales (cf. Cifuentes, Shin & Ferrucci (2005)). For the integrated financial market we prove the existence of a price-payment equilibrium and design an algorithm for the computation of the greatest and the least equilibrium. Systemic risk maesures and the number of defaults corresponding to the greatest price-payment equilibrium are analyzed in several comparative case studies. These illustrate the individual and joint impact of interbank liabilities, bankruptcy costs, cross-holdings and fire sales on systemic risk.
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University of Cambridge Research Councils UK
    Clay Mathematics Institute London Mathematical Society NM Rothschild and Sons