Overlapping portfolios, contagion, and financial stability

Fabio Caccioli, J. Farmer, Nick Foti and Daniel Rockmore

Journal of Economic Dynamics and Control, 2015, vol. 51, issue C, 50-63

Abstract: We study the problem of interacting channels of contagion in financial networks. The first channel of contagion is counterparty failure risk; this is captured empirically using data for the Austrian interbank network. The second channel of contagion is overlapping portfolio exposures; this is studied using a stylized model. We perform stress tests according to different protocols. For the parameters we study neither channel of contagion results in large effects on its own. In contrast, when both channels are active at once, bankruptcies are much more common and have large systemic effects.

Keywords: Systemic risk; Network models; Contagion (search for similar items in EconPapers)
JEL-codes: C63 G01 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (107)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:51:y:2015:i:c:p:50-63

DOI: 10.1016/j.jedc.2014.09.041

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