Systemic risk in financial networks with two central institutions

Document Type : Original Article

Authors

Department of Mathematics and Computer Science, Amirkabir University of Technology (Tehran Polytechnic), Iran

Abstract

Systemic risk in the interbank market is the topic of this article. This market is modeled as a directed graph, where the edges are the bank-to-bank liabilities and bank-to-end users liabilities and the nodes are the banks. Our study extends the modeling paradigm of Amini et al. by adding a second Central node to the system and using the equilibrium equation of the Veraart et al. with some modifications that are better suited to our model. We study the effects of two central nodes on a financial network. It is evident that two central nodes can reduce the end-users shortfall and increase the predicted surplus of the banks when compared to a single central node. We provide a few straightforward examples to demonstrate our findings.

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Main Subjects

AUT Journal of Mathematics and Computing

Articles in Press, Accepted Manuscript
Available Online from 26 October 2024

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