A model of financial contagion with variable asset returns may be replaced with a simple threshold model of cascades

Teruyoshi Kobayashi

No 1315, Discussion Papers from Graduate School of Economics, Kobe University

Abstract: I show the equivalence between a model of financial contagion and the widely-used threshold model of global cascades proposed by Watts (2002). The model financial network comprises banks that hold risky external assets as well as interbank assets. It turns out that there is no need to construct the balance sheets of banks if the shadow threshold of default is appropriately defined in accordance with the stochastic fluctuations in external assets.

Keywords: financial network; cascades; financial contagion; systemic risk (search for similar items in EconPapers)
JEL-codes: G01 G18 (search for similar items in EconPapers)
Pages: 8pages
Date: 2013-12
New Economics Papers: this item is included in nep-ban and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://www.econ.kobe-u.ac.jp/RePEc/koe/wpaper/2013/1315.pdf (application/pdf)

Related works:
Journal Article: A model of financial contagion with variable asset returns may be replaced with a simple threshold model of cascades (2014)
Working Paper: A model of financial contagion with variable asset returns may be replaced with a simple threshold model of cascades (2014)
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