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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

[img] Text (dynamic default contagion in heterogeneous interbank systems) - Accepted Version
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Identification Number: 10.1137/20M1376765


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
Subjects: H Social Sciences > HA Statistics
H Social Sciences > HG Finance
Q Science > QA Mathematics
Date Deposited: 05 Jun 2024 13:18
Last Modified: 18 Jul 2024 03:33

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