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

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12

Strategic Interactions on Financial Networks for the Analysis of Systemic Risk

Ethan Cohen-Cole, Andrei Kirilenko and Eleonora Patacchini

Abstract We illustrate how a network-based analysis can be useful to the evaluation of systemic risk, highlighting the abilities of a network model in terms of identification and measurement of the system-wide effects. Beginning with the methodological framework used in the social interactions literature, we discuss the use of behavior-based models in the financial markets context and relate our approach to that used in the epidemiological literature. Using these ideas, we define a new measure of systemic risk. Our measure differs from existing approaches in that it depends on the specific network architecture ...

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