The framework of systemic risk related to contagion, recovery rate and capital requirement in an interbank network

Xuemin Ren, George X. Yuan () and Lishang Jiang
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Xuemin Ren: Institute of Risk Management, Department of Mathematics, Tongji University, No. 1239 Siping Road, Shanghai, China 200092, China
George X. Yuan: Institute of Risk Management, Department of Mathematics, Tongji University, No. 1239 Siping Road, Shanghai, China 200092, China
Lishang Jiang: Institute of Risk Management, Department of Mathematics, Tongji University, No. 1239 Siping Road, Shanghai, China 200092, China

Journal of Financial Engineering (JFE), 2014, vol. 01, issue 01, 1-23

Abstract: In this paper, by using the "clearing payment concept" initially introduced by Eisenberg and Noe (2001, Systemic Risk in Financial Systems. Management Science, 47(2), 236–249), under general framework of financial system (network) in an interbank network, we first discuss the mechanics of systemic risk's contagions related to assets' recovery rate, and capital requirement. Then under the general regularity condition for the financial network, we discuss some new results for the existence, uniqueness, and continuity results which could be regarded as the fundamental supporting for the systemic risk measurement in terms of numerical analysis with simulations in the practice.

Keywords: Systemic risk; clearing payment vector; contagion; interbank network; recovery rate; capital requirement; financial system; obstacle problem; C02; D85; G21; G28 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S2345768614500044

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