Details
| Original language | English |
|---|---|
| Article number | 9 |
| Journal | Probability, Uncertainty and Quantitative Risk |
| Volume | 2 |
| Publication status | Published - Jun 2017 |
Abstract
The paper presents a comprehensive model of a banking system that inte-grates network effects, bankruptcy costs, fire sales, and cross-holdings. 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. The number of defaults corresponding to the greatest price-payment equilibrium is analyzed in several comparative case studies. These illustrate the individual and joint impact of interbank liabilities, bankruptcy costs, fire sales and cross-holdings on systemic risk. We study policy implications and regulatory instruments, including central bank guarantees and quantitative easing, the significance of last wills of financial institutions, and capital requirements.
Keywords
- Bankruptcy costs, Cross-holdings, Financial contagion, Financial network, Fire sales, Systemic risk
ASJC Scopus subject areas
- Mathematics(all)
- Statistics and Probability
- Mathematics(all)
- Applied Mathematics
- Decision Sciences(all)
- Statistics, Probability and Uncertainty
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In: Probability, Uncertainty and Quantitative Risk, Vol. 2, 9, 06.2017.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - The joint impact of bankruptcy costs, fire sales and cross-holdings on systemic risk in financial networks
AU - Weber, Stefan
AU - Weske, Kerstin
N1 - Publisher Copyright: © The Author(s). 2017.
PY - 2017/6
Y1 - 2017/6
N2 - The paper presents a comprehensive model of a banking system that inte-grates network effects, bankruptcy costs, fire sales, and cross-holdings. 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. The number of defaults corresponding to the greatest price-payment equilibrium is analyzed in several comparative case studies. These illustrate the individual and joint impact of interbank liabilities, bankruptcy costs, fire sales and cross-holdings on systemic risk. We study policy implications and regulatory instruments, including central bank guarantees and quantitative easing, the significance of last wills of financial institutions, and capital requirements.
AB - The paper presents a comprehensive model of a banking system that inte-grates network effects, bankruptcy costs, fire sales, and cross-holdings. 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. The number of defaults corresponding to the greatest price-payment equilibrium is analyzed in several comparative case studies. These illustrate the individual and joint impact of interbank liabilities, bankruptcy costs, fire sales and cross-holdings on systemic risk. We study policy implications and regulatory instruments, including central bank guarantees and quantitative easing, the significance of last wills of financial institutions, and capital requirements.
KW - Bankruptcy costs
KW - Cross-holdings
KW - Financial contagion
KW - Financial network
KW - Fire sales
KW - Systemic risk
UR - http://www.scopus.com/inward/record.url?scp=85041570307&partnerID=8YFLogxK
U2 - 10.1186/s41546-017-0020-9
DO - 10.1186/s41546-017-0020-9
M3 - Article
VL - 2
JO - Probability, Uncertainty and Quantitative Risk
JF - Probability, Uncertainty and Quantitative Risk
SN - 2367-0126
M1 - 9
ER -