Short communication: dynamic default contagion in heterogeneous interbank systems

Feinstein, Zachary and Sojmark, Andreas ORCID: 0000-0001-7488-0221 (2021) Short communication: dynamic default contagion in heterogeneous interbank systems. SIAM Journal on Financial Mathematics, 12 (4). SC83-SC97. ISSN 1945-497X

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Abstract

In this work we provide a simple setting that connects the structural modeling approach of Gai- Kapadia interbank networks with the mean-field approach to default contagion. To accomplish this we make two key contributions. First, we propose a dynamic default contagion model with endogenous early defaults for a finite set of banks, generalizing the Gai-Kapadia framework. Second, we reformulate this system as a stochastic particle system leading to a limiting mean-field problem. We study the existence of these clearing systems and, for the mean-field problem, the continuity of the system response.

Item Type:	Article
Additional Information:	© 2021 Society for Industrial and Applied Mathematics
Divisions:	Mathematics LSE
Subjects:	H Social Sciences > HA Statistics H Social Sciences > HG Finance Q Science > QA Mathematics
Date Deposited:	05 Jun 2024 13:18
Last Modified:	15 Nov 2024 00:12
URI:	http://eprints.lse.ac.uk/id/eprint/123789

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