Advanced Search
MyIDEAS: Login

Stress Testing The Resilience Of Financial Networks

Contents:

Author Info

  • HAMED AMINI

    ()
    (INRIA Rocquencourt, France; Ecole Normale Superiéure, Paris, France)

  • RAMA CONT

    ()
    (Laboratoire de Probabilités et Modèles Aléatoires, CNRS – Université Pierre et Marie Curie, France; IEOR Department, Columbia University, New York, USA)

  • ANDREEA MINCA

    ()
    (INRIA Rocquencourt, France; Laboratoire de Probabilités et Modèles Aléatoires, CNRS – Université Pierre et Marie Curie, France)

Registered author(s):

    Abstract

    We propose a simulation-free framework for stress testing the resilience of a financial network to external shocks affecting balance sheets. Whereas previous studies of contagion effects in financial networks have relied on large scale simulations, our approach uses a simple analytical criterion for resilience to contagion, based on an asymptotic analysis of default cascades in heterogeneous networks. In particular, our methodology does not require to observe the whole network but focuses on the characteristics of the network which contribute to its resilience. Applying this framework to a sample network, we observe that the size of the default cascade generated by a macroeconomic shock across balance sheets may exhibit a sharp transition when the magnitude of the shock reaches a certain threshold: Beyond this threshold, contagion spreads to a large fraction of the financial system. An upper bound is given for the threshold in terms of the characteristics of the network.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S0219024911006504
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=html&id=pii:S0219024911006504
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

    Volume (Year): 15 (2012)
    Issue (Month): 01 ()
    Pages: 1250006-1-1250006-20

    as in new window
    Handle: RePEc:wsi:ijtafx:v:15:y:2012:i:01:p:1250006-1-1250006-20

    Contact details of provider:
    Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml

    Order Information:
    Email:

    Related research

    Keywords: Systemic risk; random graphs; stress test; default risk; macro-prudential regulation;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Rodrigo César de Castro Miranda & Benjamin Miranda Tabak, 2013. "Contagion Risk within Firm-Bank Bivariate Networks," Working Papers Series 322, Central Bank of Brazil, Research Department.
    2. Greenwood, Robin & Landier, Augustin & Thesmar, David, 2011. "Vulnerable Banks," TSE Working Papers 11-280, Toulouse School of Economics (TSE).
    3. Leonardo Bargigli & Giovanni Di Iasio & Luigi Infante & Fabrizio Lillo & Federico Pierobon, 2013. "The Multiplex Structure of Interbank Networks," Working Papers - Economics wp2013_26.rdf, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:15:y:2012:i:01:p:1250006-1-1250006-20. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.