A model of financial contagion with variable asset returns may be replaced with a simple threshold model of cascades
AbstractI show the equivalence between a model of financial contagion and the widely-used threshold model of global cascades proposed by Watts (2002). The model financial network comprises banks that hold risky external assets as well as interbank assets. It turns out that there is no need to construct the balance sheets of banks if the shadow threshold of default is appropriately defined in accordance with the stochastic fluctuations in external assets.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1312.6804.
Date of creation: Dec 2013
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Other versions of this item:
- Teruyoshi Kobayashi, 2013. "A model of financial contagion with variable asset returns may be replaced with a simple threshold model of cascades," Discussion Papers 1315, Graduate School of Economics, Kobe University.
- G01 - Financial Economics - - General - - - Financial Crises
- G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-29 (All new papers)
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