Mike Atkin and Mike Bennett
In order to fully understand and analyze systemic risk, it is first necessary to understand the system and its components. This means having a consistent representation of the ‘stuff’ of which the system is made up – the business entities, the contracts between them and the securities that are traded.
Classification is intimately bound up in semantics as we shall see. To create a formal representation of securities contracts for example, one must start by classifying them into different types.
In order to represent the system as a whole – the system within which systemic risk arises – there are two things which need to be represented formally: the components of the system; and ...