On Shock Propagation in Financial Networks
(2018)Department of Automatic Control
 Abstract
 This thesis develops a simplified financial network model for an interbank lending system which is then analyzed in terms of contagion when exposed to external liquidity shocks. The aim is to understand how individual institutions and the network structure affect the shock propagation and finding factors that increase respectively decrease the systemic risk of the network. The network structures analyzed are mainly the ring graph, the complete graph, and the directed tree graph, given an expost and an exante perspective.
The first result indicates that traditional centrality measures are not capable of identifying systemically important institutions. The second result concerns the interconnections in the network structure, where it... (More)  This thesis develops a simplified financial network model for an interbank lending system which is then analyzed in terms of contagion when exposed to external liquidity shocks. The aim is to understand how individual institutions and the network structure affect the shock propagation and finding factors that increase respectively decrease the systemic risk of the network. The network structures analyzed are mainly the ring graph, the complete graph, and the directed tree graph, given an expost and an exante perspective.
The first result indicates that traditional centrality measures are not capable of identifying systemically important institutions. The second result concerns the interconnections in the network structure, where it is concluded that if one institution or all institutions are subject to a certain shock, a complete structure always performs better than or equally as well as the denser structure of a ring graph, in terms of number of defaulting institutions, whereas if multiple institutions, but less than all of them, are exposed, the complete graph may perform worse. The last result shows that in acyclic tree graphs, a higher number of offspring in the kregular tree graph and an offspring distribution with less variance in the random tree graph, can restrict the contagion respectively reduce the probability of shock propagation further down the tree. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/studentpapers/record/8954123
 author
 Rosenberg, Isabelle and Svensson, Viktor
 supervisor

 Giacomo Como ^{LU}
 Anders Rantzer ^{LU}
 organization
 year
 2018
 type
 H3  Professional qualifications (4 Years  )
 subject
 report number
 TFRT6062
 ISSN
 02805316
 language
 English
 id
 8954123
 date added to LUP
 20180711 11:09:59
 date last changed
 20180711 11:09:59
@misc{8954123, abstract = {This thesis develops a simplified financial network model for an interbank lending system which is then analyzed in terms of contagion when exposed to external liquidity shocks. The aim is to understand how individual institutions and the network structure affect the shock propagation and finding factors that increase respectively decrease the systemic risk of the network. The network structures analyzed are mainly the ring graph, the complete graph, and the directed tree graph, given an expost and an exante perspective. The first result indicates that traditional centrality measures are not capable of identifying systemically important institutions. The second result concerns the interconnections in the network structure, where it is concluded that if one institution or all institutions are subject to a certain shock, a complete structure always performs better than or equally as well as the denser structure of a ring graph, in terms of number of defaulting institutions, whereas if multiple institutions, but less than all of them, are exposed, the complete graph may perform worse. The last result shows that in acyclic tree graphs, a higher number of offspring in the kregular tree graph and an offspring distribution with less variance in the random tree graph, can restrict the contagion respectively reduce the probability of shock propagation further down the tree.}, author = {Rosenberg, Isabelle and Svensson, Viktor}, issn = {02805316}, language = {eng}, note = {Student Paper}, title = {On Shock Propagation in Financial Networks}, year = {2018}, }