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 Graduate School of Economics, Kobe University in its series Discussion Papers with number 1315.
Date of creation: Dec 2013
Date of revision:
financial network; cascades; financial contagion; systemic risk;
Other versions of this item:
- Kobayashi, Teruyoshi, 2014. "A model of financial contagion with variable asset returns may be replaced with a simple threshold model of cascades," Economics Letters, Elsevier, vol. 124(1), pages 113-116.
- Teruyoshi Kobayashi, 2013. "A model of financial contagion with variable asset returns may be replaced with a simple threshold model of cascades," Papers 1312.6804, arXiv.org, revised Apr 2014.
- 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-2014-01-10 (All new papers)
- NEP-BAN-2014-01-10 (Banking)
- NEP-NET-2014-01-10 (Network Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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