Systemic risk measured by systems resiliency to initial shocks

Luka Klin\v{c}i\'c, Vinko Zlati\'c, Guido Caldarelli and Hrvoje \v{S}tefan\v{c}i\'c

Papers from arXiv.org

Abstract: The study of systemic risk is often presented through the analysis of several measures referring to quantities used by practitioners and policy makers. Almost invariably, those measures evaluate the size of the impact that exogenous events can exhibit on a financial system without analysing the nature of initial shock. Here we present a symmetric approach and propose a set of measures that are based on the amount of exogenous shock that can be absorbed by the system before it starts to deteriorate. For this purpose, we use a linearized version of DebtRank that allows to clearly show the onset of financial distress towards a correct systemic risk estimation. We show how we can explicitly compute localized and uniform exogenous shocks and explained their behavior though spectral graph theory. We also extend analysis to heterogeneous shocks that have to be computed by means of Monte Carlo simulations. We believe that our approach is more general and natural and allows to express in a standard way the failure risk in financial systems.

Date: 2023-04
New Economics Papers: this item is included in nep-ban and nep-rmg
References: Add references at CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2304.05794 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2304.05794

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().