Contagion and Systemic Risk in Financial Networks
type: CreativeWork
description: The 2007-2009 financial crisis has shed light on the importance of contagion and systemic risk, and revealed the lack of adequate indicators for measuring and monitoring them. This dissertation addresses these issues and leads to several recommendations for the design of an improved assessment of systemic importance, improved rating methods for structured finance securities, and their use by investors and risk managers. Using a complete data set of all mutual exposures and capital levels of financial institutions in Brazil in 2007 and 2008, we explore in chapter 2 the structure and dynamics of the Brazilian financial system. We show that the Brazilian financial system exhibits a complex network structure characterized by a strong degree of heterogeneity in connectivity and exposure sizes across institutions, which is qualitatively and quantitatively similar to the statistical features observed in other financial systems. We find that the Brazilian financial network is well represented by a directed scale-free network, rather than a small world network. Based on these observations, we propose a stochastic model for the structure of banking networks, representing them as a directed weighted scale free network with power law distributions for in-degree and out-degree of nodes, Pareto distribution for exposures. This model may then be used for simulation studies of contagion and systemic risk in networks. We propose in chapter 3 a quantitative methodology for assessing contagion and systemic risk in a network of interlinked institutions. We introduce the Contagion Index as a metric of the systemic importance of a single institution or a set of institutions, that combines the effects of both common market shocks to portfolios and contagion through counterparty exposures. Using a directed scale-free graph simulation of the financial system, we study the sensitivity of contagion to a change in aggregate network parameters: connectivity, concentration of exposures, heteroge…
abstract: The 2007-2009 financial crisis has shed light on the importance of contagion and systemic risk, and revealed the lack of adequate indicators for measuring and monitoring them. This dissertation addresses these issues and leads to several recommendations for the design of an improved assessment of systemic importance, improved rating methods for structured finance securities, and their use by investors and risk managers. Using a complete data set of all mutual exposures and capital levels of financial institutions in Brazil in 2007 and 2008, we explore in chapter 2 the structure and dynamics of the Brazilian financial system. We show that the Brazilian financial system exhibits a complex network structure characterized by a strong degree of heterogeneity in connectivity and exposure sizes across institutions, which is qualitatively and quantitatively similar to the statistical features observed in other financial systems. We find that the Brazilian financial network is well represented by a directed scale-free network, rather than a small world network. Based on these observations, we propose a stochastic model for the structure of banking networks, representing them as a directed weighted scale free network with power law distributions for in-degree and out-degree of nodes, Pareto distribution for exposures. This model may then be used for simulation studies of contagion and systemic risk in networks. We propose in chapter 3 a quantitative methodology for assessing contagion and systemic risk in a network of interlinked institutions. We introduce the Contagion Index as a metric of the systemic importance of a single institution or a set of institutions, that combines the effects of both common market shocks to portfolios and contagion through counterparty exposures. Using a directed scale-free graph simulation of the financial system, we study the sensitivity of contagion to a change in aggregate network parameters: connectivity, concentration of exposures, heteroge…
author: Moussa, Amal
language: English
keywords: Finance, Financial risk management, Finance--Statistics, Monte Carlo method, Financial crises--Mathematical models, Global Financial Crisis (2008-2009)
date published: 2011
date modified: 2026-07-24T01:44:11Z
provider: Columbia University
publisher: Networked Digital Library of Theses and Dissertations
type: WebPage
source organization: Columbia University

PropertyValue
property ID: DOI
value: 10.7916/D8T159MH