publication . Report . Preprint . Other literature type . Article . 2012

Liaisons dangereuses: Increasing connectivity, risk sharing, and systemic risk

Domenico Delli Gatti; stefano battiston;
Open Access
  • Published: 12 Apr 2012
  • Publisher: National Bureau of Economic Research
Abstract
We characterize the evolution over time of a network of credit relations among financial agents as a system of coupled stochastic processes. Each process describes the dynamics of individual financial robustness, while the coupling results from a network of liabilities among agents. The average level of risk diversification of the agents coincides with the density of links in the network. In addition to a process of diffusion of financial distress, we also consider a discrete process of default cascade, due to the re-evaluation of agents' assets. In this framework we investigate the probability of individual defaults as well as the probability of systemic defaul...
Subjects
free text keywords: jel:C63, jel:E32, jel:G01, jel:G32, Economics, Economics and Econometrics, Control and Optimization, Applied Mathematics
Funded by
EC| POLHIA
Project
POLHIA
Monetary, Fiscal and Structural Policies with Heterogeneous Agents
  • Funder: European Commission (EC)
  • Project Code: 225408
  • Funding stream: FP7 | SP1 | SSH
,
EC| FOC-II
Project
FOC-II
Forecasting Financial Crises
  • Funder: European Commission (EC)
  • Project Code: 255987
  • Funding stream: FP7 | SP1 | ICT
Communities
FET FP7FET Open: Challenging current thinking
FET FP7FET Open: Forecasting Financial Crises
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