This thesis extends the literature of systemic risk in financial networks in two directions.
First, we develop a majorization-based tool to compare financial networks in terms of systemic losses with a focus on the implications of liability concentration. Specifically, we quantify liability concentration by applying the majorization order to the liability matrix that captures the interconnectedness of banks in a financial network. We develop notions of balancing and unbalancing networks to bring out the qualitatively different implications of liability concentration on the system's loss profile. An empirical analysis of the network formed by the banking sectors of eight representative European countries suggests that the system is either unbalancing or close to it. This empirical finding, along with the majorization results, supports regulatory policies aiming at limiting the size of gross exposures to individual counterparties.
Second, we propose a multi-period clearing framework, where the level of systemic risk is mitigated through provision of liquidity assistance. The interbank liability network evolves stochastically over time, and assets of defaulted banks are sold to qualified banks within the network through a first-price sealed-bid auction. We find that policies targeting systemically important banks are more effective in core-periphery network structures, whereas those maximizing the total liquidity in the system are preferred in random network configurations. We assess sensitivity of systemic risk to variations in interbank liabilities as well as to their correlation structure.
","abstract_html":"<p>This thesis extends the literature of systemic risk in financial networks in two directions.</p> <p>First, we develop a majorization-based tool to compare financial networks in terms of systemic losses with a focus on the implications of liability concentration. Specifically, we quantify liability concentration by applying the majorization order to the liability matrix that captures the interconnectedness of banks in a financial network. We develop notions of balancing and unbalancing networks to bring out the qualitatively different implications of liability concentration on the system's loss profile. An empirical analysis of the network formed by the banking sectors of eight representative European countries suggests that the system is either unbalancing or close to it. This empirical finding, along with the majorization results, supports regulatory policies aiming at limiting the size of gross exposures to individual counterparties.</p> <p>Second, we propose a multi-period clearing framework, where the level of systemic risk is mitigated through provision of liquidity assistance. The interbank liability network evolves stochastically over time, and assets of defaulted banks are sold to qualified banks within the network through a first-price sealed-bid auction. We find that policies targeting systemically important banks are more effective in core-periphery network structures, whereas those maximizing the total liquidity in the system are preferred in random network configurations. We assess sensitivity of systemic risk to variations in interbank liabilities as well as to their correlation structure.</p>","abstract_has_math":false,"creators":["Chen, Peng-Chu"],"institution":null,"degree_name":"Doctor of Philosophy (PhD)","degree_level":"Dissertation","degree_discipline":"Industrial Engineering","degree_department":null,"school":null,"contributors":["Thomas Morin","Agostino Capponi","Jose Figueroa-Lopez","George Shanthikumar","Hong Wan"],"advisors":[],"committee_chairs":[],"committee_members":[],"year":2016,"date_issued":"2016-08-01T07:00:00Z","date_published":"2016-08-01T07:00:00Z","updated_at":"2026-07-24T03:53:55Z","subjects":["Social sciences","Applied sciences","Clearing payments","Financial networks","Interbank liabilities","Majorization","Mitigation strategies","Systemic risk","Finance and Financial Management","Operations and Supply Chain Management"],"languages":[],"rights":[],"rights_urls":[],"identifier_entries":[]},"links":{"outbound_url":"https://docs.lib.purdue.edu/open_access_dissertations/743","outbound_label":"Repository record","outbound_source":"dc:identifier"},"metadata_groups":[{"id":"people","label":"People","entries":[{"key":"dc:contributor","label":"Contributor","values":["Thomas Morin","Agostino Capponi","Jose Figueroa-Lopez","George Shanthikumar","Hong Wan"]},{"key":"dc:creator","label":"Author","values":["Chen, Peng-Chu"]}]},{"id":"academic_context","label":"Academic Context","entries":[{"key":"thesis:degree_discipline","label":"Discipline","values":["Industrial Engineering"]},{"key":"thesis:degree_level","label":"Degree Level","values":["Dissertation"]},{"key":"thesis:degree_name","label":"Degree Name","values":["Doctor of Philosophy (PhD)"]}]},{"id":"subjects_keywords","label":"Subjects and Keywords","entries":[{"key":"dc:subject","label":"Dc Subject","values":["Social sciences","Applied sciences","Clearing payments","Financial networks","Interbank liabilities","Majorization","Mitigation strategies","Systemic risk","Finance and Financial Management","Operations and Supply Chain Management"]}]},{"id":"identifiers","label":"Identifiers","entries":[{"key":"dc:identifier","label":"Identifier","values":["https://docs.lib.purdue.edu/open_access_dissertations/743"]}]},{"id":"additional","label":"Additional Metadata","entries":[{"key":"dc:description.abstract","label":"Abstract","values":["This thesis extends the literature of systemic risk in financial networks in two directions.
First, we develop a majorization-based tool to compare financial networks in terms of systemic losses with a focus on the implications of liability concentration. Specifically, we quantify liability concentration by applying the majorization order to the liability matrix that captures the interconnectedness of banks in a financial network. We develop notions of balancing and unbalancing networks to bring out the qualitatively different implications of liability concentration on the system's loss profile. An empirical analysis of the network formed by the banking sectors of eight representative European countries suggests that the system is either unbalancing or close to it. This empirical finding, along with the majorization results, supports regulatory policies aiming at limiting the size of gross exposures to individual counterparties.
Second, we propose a multi-period clearing framework, where the level of systemic risk is mitigated through provision of liquidity assistance. The interbank liability network evolves stochastically over time, and assets of defaulted banks are sold to qualified banks within the network through a first-price sealed-bid auction. We find that policies targeting systemically important banks are more effective in core-periphery network structures, whereas those maximizing the total liquidity in the system are preferred in random network configurations. We assess sensitivity of systemic risk to variations in interbank liabilities as well as to their correlation structure.
"]},{"key":"dc:title","label":"Title","values":["Systemic risk in financial networks"]}]}],"canonical_facts":{"dc:contributor":["Thomas Morin","Agostino Capponi","Jose Figueroa-Lopez","George Shanthikumar","Hong Wan"],"dc:creator":["Chen, Peng-Chu"],"dc:description.abstract":["This thesis extends the literature of systemic risk in financial networks in two directions.
First, we develop a majorization-based tool to compare financial networks in terms of systemic losses with a focus on the implications of liability concentration. Specifically, we quantify liability concentration by applying the majorization order to the liability matrix that captures the interconnectedness of banks in a financial network. We develop notions of balancing and unbalancing networks to bring out the qualitatively different implications of liability concentration on the system's loss profile. An empirical analysis of the network formed by the banking sectors of eight representative European countries suggests that the system is either unbalancing or close to it. This empirical finding, along with the majorization results, supports regulatory policies aiming at limiting the size of gross exposures to individual counterparties.
Second, we propose a multi-period clearing framework, where the level of systemic risk is mitigated through provision of liquidity assistance. The interbank liability network evolves stochastically over time, and assets of defaulted banks are sold to qualified banks within the network through a first-price sealed-bid auction. We find that policies targeting systemically important banks are more effective in core-periphery network structures, whereas those maximizing the total liquidity in the system are preferred in random network configurations. We assess sensitivity of systemic risk to variations in interbank liabilities as well as to their correlation structure.
"],"dc:identifier":["https://docs.lib.purdue.edu/open_access_dissertations/743"],"dc:subject":["Social sciences","Applied sciences","Clearing payments","Financial networks","Interbank liabilities","Majorization","Mitigation strategies","Systemic risk","Finance and Financial Management","Operations and Supply Chain Management"],"dc:title":["Systemic risk in financial networks"],"thesis:degree_discipline":["Industrial Engineering"],"thesis:degree_level":["Dissertation"],"thesis:degree_name":["Doctor of Philosophy (PhD)"]},"updated_at":"2026-07-24T03:53:55Z"}