In this article we consider a mean-field model of interacting diffusions for the monetary reserves in which the reserves are subjected to a self- and cross-exciting shock. This is motivated by the financial acceleration and fire sales observed in the market. We derive a mean-field limit using a weak convergence analysis and find an explicit measure-valued process associated with a large interbanking system. We define systemic risk indicators and derive, using the limiting process, several law of large numbers results and verify these numerically. We conclude that self-exciting shocks increase the systemic risk in the network and their presence in interbank networks should not be ignored.
Borovykh, A., Pascucci, A., La Rovere, S. (2018). Systemic risk in a mean-field model of interbank lending with self-exciting shocks. IISE TRANSACTIONS, 50(9), 806-819 [10.1080/24725854.2018.1448491].
Systemic risk in a mean-field model of interbank lending with self-exciting shocks
Borovykh, Anastasia;Pascucci, Andrea
;La Rovere, Stefano
2018
Abstract
In this article we consider a mean-field model of interacting diffusions for the monetary reserves in which the reserves are subjected to a self- and cross-exciting shock. This is motivated by the financial acceleration and fire sales observed in the market. We derive a mean-field limit using a weak convergence analysis and find an explicit measure-valued process associated with a large interbanking system. We define systemic risk indicators and derive, using the limiting process, several law of large numbers results and verify these numerically. We conclude that self-exciting shocks increase the systemic risk in the network and their presence in interbank networks should not be ignored.File | Dimensione | Formato | |
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