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Handbook on Systemic Risk by Joseph A. Langsam, Jean-Pierre Fouque

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11

Network Models and Systemic Risk Assessment

Helmut Elsinger, Alfred Lehar and Martin Summer

Abstract Over recent years a number of network models of interbank markets have been developed and applied to the analysis of insolvency contagion and systemic risk. In this chapter we survey the concepts used in these models and discuss their main findings as well as their applications in systemic risk analysis. Network models are designed to address potential domino effects resulting from the failure of financial institutions. Specifically they attempt to answer the question of whether the failure of one institution will result in the subsequent failure of others. Since in a banking crisis authorities usually intervene to stabilize the banking ...

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